There are 30 million small businesses operating in America today. Many of those companies live and die by machinery that helps them do everything from sealing wine corks to automating the insertion of cream cheese into pastries.
The machinery that keeps companies moving is something that most aspiring entrepreneurs don’t think about until they need to foot the bill for some niche piece of hardware that costs thousands of dollars. In these instances, people are faced with a difficult choice…
Should they pursue new equipment leasing options or buy the machinery that they need outright?
Leasing and buying carry pros and cons. Below, we break down key considerations in both areas so you can make an informed acquisition decision.
New Equipment Leasing
When you go down the route of new equipment leasing, you rent equipment from its manufacturer (or a distributor) for a fixed term as opposed to buying it outright. This arrangement carries the following advantages and disadvantages:
Pro – Cheaper Up-Front
A lease is paid on a monthly basis and for a fixed, short term. This makes it so your business will spend less money up-front when compared to needing to purchase a machine outright at its full value.
Pro – No Commitment
Since most lease terms on equipment hover around 18-months, you can rest assured that if your company has to close its doors, you won’t be stuck with a bunch of expensive machinery. You can also upgrade your equipment frequently by leasing a newer model.
Con – Higher Overall Cost
Leasing over time will end up being more expensive than buying. That increased cost is due to the heightened flexibility that leases afford you.
New Equipment Buying
If pursuing a lease sounds too non-committal for your taste, buying is a great alternative. Here’s what you can expect if you choose to purchase the equipment that your business relies on:
Pro – You’ll Save Money Over Time
If a piece of equipment is built to last for ten years, you’ll save a lot of money buying it upfront as opposed to leasing it over its lifespan. Therefore, if you’re planning on being in business for a while, buying is the more cost-sensible choice.
Con – Larger Upfront Cost
A large piece of machinery can easily cost $10,000+. If your business doesn’t have that kind of cash flow, you may need to turn to information offered on sites like https://www.formulafunding.com/ to learn about financing options.
Con – No Trading Up
Trading up is a lot harder with purchased equipment since you have to liquidate it before you can buy a newer model. If your industry requires you to stay on the cutting edge constantly, this can represent a problem.
Is New Equipment Leasing or Buying Right for You?
Picking between new equipment leasing and purchasing can be a difficult choice. At the end of the day, your cash-flow and industry demands will dictate which option is going to best suit your needs.
We wish you the best as you decide how to acquire the tools that you need to run your business. Feel free to browse more of the helpful content on our website if you need additional advice on the subject or a variety of other entrepreneurial topics!