Previous | Stabilizing Your Business' Cash Flow Next | Student loans have a variety of repayment options
December 22, 2022 / Jeramy Culler
Lease vs Buy: Which is Better for My Business?

Lease vs Buy: Which is Better for My Business?

Equipment, vehicles, facilities – large-ticket items are just one type of expense a business owner will have to manage. Coupled with hidden fees, such as taxes, delivery charges, installation fees, and routine maintenance, purchasing an asset can prove costly. Financing options, including business loans and leases, are available to businesses that are in the market to acquire a new asset. However, proper planning by a business owner is necessary to find the best decision for each large-ticket purchase.A businessman reading the fine print

Leasing

Leasing equipment, a vehicle, or even a building can yield several advantages. First, leasing generally equates to a lower initial investment. Since payments are spread out over several years, there is no significant outlay of cash related to leasing. In addition, by paying only rental expense, a business owner can invest in better quality, even more expensive assets. Depending on the industry, the risk of asset obsolescence might be of concern. Leasing can decrease this risk, as upgrading is made easier with replacement options. Moreover, lease payments are treated as operating expenses for the business and interest is tax-deductible.

Leasing does present some disadvantages for business owners. Although owning an asset is not without risks, both control and ownership are surrendered with leasing. In addition, while lower monthly payments spread out the costs of leasing over a set period, leasing requires interest payments that can result in paying more for an asset than if it was purchased. Should the business owner decide the asset is no longer needed, one cannot get out of a lease agreement. Rather, monthly payments will continue unless a lump sum is paid to settle the remaining balance owed.

Buying

Ownership of an asset has its benefits. A business can continue to use a purchased asset for as long as it remains productive, or the asset can be sold when any loans are paid off. Although leasing companies are typically against customization of an asset, purchased or financed assets can often be tailored to meet business specifications.

Purchasing or financing an asset is not without risk. A business can have a huge initial outlay of cash, or borrowed funds may result in lender restrictions. Additionally, an owned asset can become obsolete or have very little resale value when a business is ready to dispose of it. There are also maintenance costs associated with a purchased or financed asset. Routine inspection and maintenance of assets decreases the chances of business disruptions to both productivity and scheduling.

Conclusion

There are both pros and cons to examine when acquiring a new asset. Careful consideration of cash flow, taxes, and useful life of the asset will help business owners determine when to lease and when to buy.

Jeramy Culler is Vice President of Commercial Services at F&M Trust.

 

Recent Articles
Student loans have a variety of repayment options
Student loans have a variety of repayment options

Student loans have a variety of repayment options

November 23, 2023 / F&M Trust

Plan for the future when leaving your job
Plan for the future when leaving your job

Plan for the future when leaving your job

November 16, 2023 / Levi Crouse

How to spot and prevent financial abuse
How to spot and prevent financial abuse

How to spot and prevent financial abuse

November 09, 2023 / Ray Wills

What does America’s credit downgrade mean?
What does America’s credit downgrade mean?

What does America’s credit downgrade mean?

November 02, 2023 / Warren Hurt

Choosing the right self-employed retirement plan
Choosing the right self-employed retirement plan

Choosing the right self-employed retirement plan

October 23, 2023 / Chris Moore

What is PMI and do I need it?
What is PMI and do I need it?

What is PMI and do I need it?

October 16, 2023 / Dave Kuhns

Should I consider buying pet insurance?
Should I consider buying pet insurance?

Should I consider buying pet insurance?

October 09, 2023 / Jill Reddecliff

Frugality is a valuable financial tool
Frugality is a valuable financial tool

Frugality is a valuable financial tool

October 02, 2023 / Shelby Yinger

How you give is as important as what you give
How you give is as important as what you give

How you give is as important as what you give

September 25, 2023 / Matt Berger

Join our e-newsletter

Sign up for our e-newsletter to get new content each month.

NOTICE: YOU ARE LEAVING F&M TRUST!

You are now leaving the F&M Trust website. Links to third-party sites are provided for your convenience. Such sites are not within our control and may not follow the same privacy, security or accessibility standards as ours. F&M Trust neither endorses nor guarantees offerings of the third-party providers, nor is F&M Trust responsible for the security, content or availability of third-party sites, their partners or advertisers.