There are many ways that business owners can choose to acquire equipment for their business. Financing and leasing are two popular options available for more expensive machinery and tools. For example, starting a courier company requires distribution equipment, vehicles and safety tools. However, many business owners often confuse the finance vs lease process. Both have significant benefits, but they are very different. To learn more about the finance vs lease debate and how you can decide what works best for you, keep reading below.
The Long Term
One of the first things you should consider when you want to decide between finance vs lease options is the longevity of the equipment you need. When you finance machinery, you take out a bank loan to pay for it in full. Then, you make monthly payments towards your loan to pay that off. So, although you are making monthly payments you own the equipment itself. This can help you save money, as leasing in the automotive business can become expensive over long periods of time. Financing is the best option for long-haul equipment, while leasing is better for short-term needs.
Another thing you should consider when acquiring equipment for your business is the potential upgrades you may want later on. When you lease a piece of machinery, you will make monthly payments on it throughout the entirety of your contract agreement. Then, you will have the option to renew the contract or return the equipment. This is a great choice for machinery that will become more advanced because you can then upgrade or replace the items that you leased. If you are afraid that the equipment you use will become obsolete in the near future, leasing may be right for you.
Both financing and leasing have tax incentives for you to consider. If you choose to finance your equipment and take out a loan, users may claim a tax deduction for a portion of the loan payment as interest and for depreciation. Those who lease their equipment are also at an advantage. Users can claim their entire lease payment as a tax deduction. However, additional tax incentives are offered for businesses that buy and own their equipment.
Another thing you should take into account when debating if you will finance vs lease is your financial qualifications. It is easier to lease equipment if you have a poor financial track record than it is to take out a bank loan. It is important to make sure that you are ready to handle the full cost of the equipment, or even the high cost of leasing, before you make your decision.
Finally, another thing that is important to budget for is repair costs. When you take full ownership of a piece of machinery, you will be responsible for any repairs it may need. The maintenance is something that could slow down your supply chain professional. However, if you choose the right lease contract, you may be able to pass on that responsibility to the company. If you are willing to pay for repairs, financing is a great option.
The finance vs lease debate features many benefits for each side. Overall, the decision to finance or lease equipment for your business comes down to the five points above. If you are financially capable and planning for the long term, financing is for you. However, if you want more freedom to upgrade or switch plans, leasing is the perfect option. Keep this post in mind the next time you are looking to purchase machinery and equipment for your business.
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