Small business owners deal with many issues that don't affect larger companies, such as the best way to finance the acquisition of equipment. The question often comes down to the particulars of the specific equipment you need and whether your business is just starting out or has a track record.
How Much Can You Spend?
If you buy your equipment, your business must be able to pay for it. Even if you finance the purchase, you'll most likely have to come up with a down payment. Leasing business equipment doesn't always require a down payment. If your business is young and you're not sure how successful it's going to be, you might want to hang on to your capital or avoid commitment to a long-term loan.
Your Decision Can Eventually Cost Your Business More
Holding onto your small business' capital is not always the right decision. It can cost you more in the long run. Your total lease payments may add up to more than the cost of the equipment if your business had bought it outright. By the same token, if you finance your purchase of the equipment and pay interest, the overall cost of leasing and buying might be the same.
Time Is a Factor
Important factors are how long the equipment will functionally serve your business and how long you expect to be in business. If you're just starting out, you may discover (depending on your business structure) that you're personally responsible for an equipment loan if your business fails.
Some equipment has limited resale value after years of use. Some items, such as computer equipment, enjoy frequent technological advances. If you finance these purchases, you might discover that you don't want to own the equipment anymore after you're done paying it off.
Whether your business purchases, finances, or leases equipment, you lock your company into a contract when you sign the lease or loan. It's important to have a thorough understanding of what you're signing because "hidden" or fine-print clauses could have a future impact on your business. A small amount of money spent on a legal review can save a large amount of money later.
Your Decision Can Affect Your Taxes
Small businesses can often deduct lease payments on their taxes. If you buy the equipment, you may be able to depreciate it on your company's tax return. However, Internal Revenue Services rules for both deductions can be tricky. A tax lawyer can help you better understand the implications.
A Business Lawyer Can Help
The law surrounding business equipment purchases or leases is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a business lawyer.