Benefits of leasing vs. buying equipment

When your business needs equipment, you may have the choice to buy or lease. Both options have pros and cons. The right fit depends on factors like your credit, industry, and expected usage. Comparing the benefits of leasing vs. buying equipment can help you figure out what works best for your company.

Regardless of whether you buy or lease, Progressive Commercial has flexible business property coverages to protect everything from manufacturing machinery to office computers.

Benefits of leasing equipment

At first glance, owning equipment outright seems like the better choice. But that isn't always the case. So, why lease equipment? For many companies, particularly startups, leasing is more accessible. It also provides a few benefits that ownership doesn't. The advantages of leasing equipment for your business include:

Cheaper to get started

It's generally more affordable to lease rather than buy the tools and machinery your company needs. That's because leases typically only require monthly payments based on a small percentage of the item's value.

By comparison, buying means either paying the full cost immediately or taking out a loan. Loans usually require a down payment, which can cost more than the first lease payment. In either case, the upfront cost to purchase business equipment may be much higher than the cost to get started with a lease.

Many lease agreements require insurance coverage to protect their equipment, so be sure to factor that into your monthly costs. Progressive Commercial can help you find an affordable policy with customized coverage. Call us or start an online quote to learn more.

More flexible and responsive

Leases may have more flexible terms than loans, making it easier to arrange a lease you can afford. Leases can have shorter terms, which allow you to re-evaluate your needs and finances, and adjust as necessary when the lease ends.

You may also have the option of a lease-to-own arrangement. Increased flexibility can be a big advantage of leasing equipment for a company that expects its needs to change in the next few years.

Better for staying on the cutting edge

Leasing may make it easier to stay up to date with the latest technology in your industry. At the end of your lease term, you don't need to worry about what to do with outdated gear. Simply give it back to the lessor (company providing the lease) and let them take care of it. You can then lease the newest version to maintain a competitive edge.

Tax benefits

There are different tax benefits for leasing vs. buying equipment. Your lease payments are often a tax-deductible business expense, which could help lower your overall costs. And because you're not financing a purchase, the lease won't appear as debt on your balance sheet.

When can owning equipment benefit your business?

Compared to leasing, owning may be less flexible and can be harder to afford when you're starting out. However, it carries long-term benefits that can make it a better fit for some companies and industries. Advantages of owning include:

Lower overall cost

A company that buys tools, machines, or equipment might spend less in the end. Leasing generally means lower monthly payments, but you'll likely pay additional fees — similar to paying interest on a loan. And unlike buying, you'll keep paying as long as you need the item.

In contrast, once you own something, you can continue to use it without monthly payments. Over time, that adds up, especially for tools and machinery that have a long, useful life.

Collateral for later financial moves

When you own, you can use your assets as collateral for other financial moves. Over time, the equity you build by owning can make it easier to qualify for loans that support your growth or give support during tough times.

Ownership may be less flexible in the short term than leasing, but it can give you more leverage to grow in the future.

Long-term ownership

Owning and using the same equipment for years can be a real advantage, especially in industries where technology doesn't change quickly. For example, using the same farm machinery allows employees to develop expertise, and things like combine harvesters are unlikely to become obsolete.

When you own your business equipment, you're responsible for taking care of it. A customized business owners policy (BOP) with Progressive Commercial can provide financial protection against damage, theft, or breakdowns.

Tax deductions

Ownership has different tax benefits than leasing. You may be able to deduct the cost of your newly purchased assets in the first year, depending on the total cost of everything you put in service, according to IRS Section 179.

The IRS also allows you to recover the value of your asset over time through depreciation, depending on what it is and when you started using it. In some cases, you may be able to deduct the asset's value and receive a bonus depreciation deduction in the same year. For big purchases, these can add up to considerable tax savings. Be sure to consult with your tax advisor regarding your specific situation.

How to choose between leasing vs. purchasing equipment

There are pros and cons to both leasing and purchasing equipment. Choosing the right option depends on your business needs, but one may be a better fit based on your goals or finances.

When to lease

Leasing may be a better option for businesses that:

• Don't have established credit
• Expect their needs to change
• Work with technology that becomes outdated frequently
• Need to spend available starting capital elsewhere

Professions that could benefit from leasing include:

• IT companies and startups that need the latest technology
• Construction firms that need temporary machinery
• Videographers who need drones or high-end equipment for shoots

When to buy

Buying equipment may be better for companies that:

• Can benefit from tax deductions on assets
• Can afford to invest more now to save money in the long term
• Want to build equity to fund future growth
• Use tools and machinery that isn't expected to become obsolete

Professions that could benefit from buying include:

• Agricultural operations that can use the same farm trucks and vehicles for years
• Manufacturing companies that need specialized machinery
• Restaurants that invest in kitchen equipment with long lifespans

Regardless of the size of your business or whether you choose to lease or buy, a BOP with commercial property coverage can help protect your investment. Get a quote for a personalized insurance policy today.