When getting new industrial equipment, a business owner needs to decide whether to get a loan for the equipment or to lease it. Here are a couple of things to consider when choosing which direction to go.
Industrial Equipment: Old vs New
Buying new industrial equipment is great but after only a couple of years it starts to age. The bonus of leasing is the ability to get brand new equipment every time your lease ends. Purchasing equipment means you have it until the equipment breaks down.
Spreading Out Payment Options
Leasing monthly costs are typically lower than purchasing industrial equipment. Once you are done with the equipment or if you don’t want to renew the lease, the payments stop. When getting an industrial equipment loan, you are on the hook for the price of the equipment until the loan has been satisfied.
Taking Advantage of Tax Advantages
Purchasing industrial equipment is helpful because you can accelerate the depreciation of the asset each year to help maximize your tax write offs. When leasing, you are not able to use accelerated depreciations on the asset because you do not own the asset.
To Keep or Not to Keep
If the equipment is for temporary use, leasing is the best option because you can return it after the lease is up. If you purchase the equipment through an industrial equipment loan, then it becomes the company’s property until it crumbles to dust. Purchasing is the way to go if you need equipment that is unlikely to change for a decade or more since you will want to keep it longer. Otherwise, if your industrial equipment will need upgrades every couple of years, then leasing is the stronger option.
Maintenance Free Options
The bonus with leasing is that in most cases, the leaser tends to be responsible for all maintenance. The lease costs reflect this responsibility. Therefore, equipment that needs light or heavy maintenance is in the hands of the leaser. The business leasing the industrial equipment saves financial costs and time. If you purchase the equipment, you are in charge of its upkeep, which can be frustrating. You are now responsible for the financial cost of an in-house employee to maintain the equipment or someone on call to maintain or repair the equipment. The financial cost includes both the lack of revenue while the equipment is down and the cost of the repair itself. As the equipment ages, sometimes those with the knowledge to repair the industrial equipment become less accessible.
Lease Buy Outs
When leases end, you typically have the option to buy the equipment or return it. Depending on the terms of the lease, there may be an option for a cheap buy out. Some are as low as $1.00.
Searching for Lower Payments
Industrial equipment loans typically have lower monthly payments when the equipment is leased rather than when the equipment is purchased. Of course, if the down payment on the equipment is more than the minimum amount, the payment will be lower because the amount of the loan will be lower.
These are some of the things to consider when deciding whether to lease or purchase industrial equipment. To find a lender who handles these loan types, go to Magilla Loans to find what options are available.