Lease or Purchase Capital Equipment
Lease or Purchase Capital Equipment?
Major Factors to Take into Consideration Before Making a Decision
- Acquisition Cost – Instead of a large up front investment when purchasing equipment, leasing minimizes it. Another way of asking that question is: “Do I have enough extra capital to spend today for something that will make me money (pay back) in months and years to come?”
- Equipment Value – There is little financial benefit for leasing, when acquiring equipment under $5,000, due to fees and higher rates for lower dollar lease amounts.
- Technological Life of the Equipment – The equipment’s useful technological life should be considered in light of the company’s long-term goals. Equipment that is projected to become obsolete over an anticipated period of use is a good candidate for leasing. A properly structured lease allows the user to shift the risks of technological obsolescence to the lessor and acquire new technology at the end of the lease term.
- Credit Lines – Leasing provides an easy, affordable method of using equipment that allows a monthly payment without obtaining a bank loan or worrying about budget justification. Leasing also keeps your other lines of credit open and total system financing, including delivery and installation, can be spread over the lease term.
Overall, there are several lease versus purchase models that companies can use to determine the best method of procuring capital equipment. By analyzing the alternatives, companies can make informed decisions on the best use of their resources to accomplish their goals.