Should You Buy Or Lease Your Computer Equipment?
Many businesses approach the question of buying or leasing computer and tech equipment as they grow. What should you do the next time you need to acquire more hardware or replace old models? Let’s look at the benefits and drawbacks of both leasing and buying.
Leasing keeps equipment new and up to date. Computers and most other digital equipment become outdated and obsolete much more quickly than most equipment businesses invest in. By leasing, you pass the financial cost of obsolescence on to the leasing company. If you have a three year lease on a computer, when the lease expires you are free to lease whatever new equipment meets your needs. Many cite that ability to have access to new equipment was leasing’s number one benefit. You’ll also have predicatable monthly expenses. Leasing terms mean that you have a set number of pieces of equipment based on your capability need. So if your computer breaks for reasons covered under the terms of your lease, you’ll get a replacement. With buying, equipment breakages are usually more costly with greater expense spikes. Leasing requires that you pay nothing up front as well, further reducing cost spikes for the business.
Leasing is almost always more expensive than purchasing when you calculate all costs. For example, a $4,000 computer would cost a total of $5,760 if leased for three years at $160 per month but only $4,000 (plus sales tax) if purchased outright. These kinds of cost comparisons are common across different lease terms. You’re also obligated to complete the lease even if you stop using the equipment. When you own the equipment you can recoup resale value from unused equipment.
Buying is easier than leasing. Every lease involves some paperwork and most leasing companies require you to submit detailed and updated financial information. Terms of the lease need to be negotiated regarding how equipment will be used, and the scope of the lease can be unfavorable if not negotiated well.
Buying allows you full decision making authority over maintenance and equipment owned by the business is tax deductible for the full purchase price in the first year in many cases.
Initial needed equipment may not be in the current company budget. The business could be at risk of tying up too many lines of credit or working capital with the purchase when those funds could be more beneficial for business growth elsewhere. Eventually the business is stuck with outdated equipment. Computing and tech hardware depreciates in value quickly as new model specifications improve and software becomes increasingly capable and requiring of more processing power.
Ultimately, a few simple rules of thumb may help you decide to lease or buy. If your equipment requirements are relatively small and you have the money--or can get a low-interest loan--then just buy it. You'll save money in the long run. However, if you require a substantial amount of equipment, such as computers for your new company's 10 employees, leasing may be a better option. After all it may not be best for your business to tie up a large amount of capital when you could use that money to establish or grow the business?