The option you choose depends on what’s most important to your business.

As businesses grow and evolve, they need equipment to help them deliver goods and services. Whether that’s a vehicle, office equipment, manufacturing machinery or a workspace, business owners have financing options. Here’s a quick look at the pros and cons of leasing and buying assets.

Leasing pros and cons

Leasing offers several advantages for businesses. First it’s easier on cash flow. You don’t need as much cash or credit upfront compared to buying. In some cases, maintenance is included in the lease which further eases cash flow.

A second key advantage of leasing is that you get to try out equipment. A short-term lease is a useful way to see how well the equipment suits your operation—or not.

Some businesses choose leasing because it means they can upgrade equipment more often. This means they can take advantage of technical advances.

Plus, lease payments for business assets will likely be tax deductible.

Now for the cons of leasing. While leasing can be easier on cash flow, in the long run the cost is usually higher than buying.

Another drawback is that when the lease term ends, you’ll need to replace the equipment. Lease payments for the replacement could be significantly higher.

A third con of leasing assets is that depreciation of the asset isn’t tax deductible.

Buying pros and cons

When your business buys equipment you gain some key benefits, including lower lifetime costs, an allowance to claim depreciation on taxes and the ability to include it as an asset on your balance sheet. Having greater assets on your balance sheet is helpful if you apply for a loan or are seeking to sell your business.

On the flip side, buying means a greater cash outlay for the purchase and possibly the need for greater credit.

Another con to buying is that once you own it, you’re responsible for all maintenance, upgrades and, eventually, the replacement of the asset at the end of its useful life.

Loans as an alternative

In some cases, the best way to finance equipment is with an equipment or vehicle loan that allows you to reserve your cash for other things. With a loan, you’ll have the convenience that comes with paying in installments as well as lower costs over the lifetime of the asset. And, if it’s a commercial real estate loan you want, we can help with that too!

The financing option you choose will depend on what’s most important in relation to your business financing and tax strategy.

 

 

All loans subject to approval. Rates, terms, and conditions are subject to change and may vary based on credit worthiness, qualifications, and collateral conditions. Federally insured by NCUA