Leasing versus Buying: What's Best for Your Industrial Equipment Needs?

As with many financing decisions, it depends. Cash flow, ability to take on an additional monthly payment, state of your balance sheet and ongoing technology needs all enter into the discussion. Every business is different, and in many cases, each piece of equipment is different when it comes to financing.

The basics

When you buy industrial equipment, you purchase and own the asset outright until you make the call to sell or otherwise dispose of it. When you lease, you make payments (usually monthly) to access the equipment for the term of the lease, but you do not own it. Then, you return it to the company from which you leased it. In some situations, there may be an option to purchase when the lease ends.

Cash flow

If you make a cash purchase of equipment, or buy with a loan that requires a large down payment, your cash flow will be affected. One benefit of equipment leasing is that monthly payments will often be lower than payments on a loan to purchase the item. Leasing may even be able to recover the equipment’s cost with revenue generated by the project it is being used for. The absence of costs of warranties, insurance, transportation and storage frees up more cash.

Overall cost

Even though monthly lease payments may be lower, you will generally pay more with leasing over the long run than if you buy equipment outright. That said, a good financing partner can work with you to tailor a financing solution to handle equipment purchase. Providers who take understand your business model and industry can develop individualized programs to make purchasing equipment a sound option.

Maintenance costs

When you purchase equipment outright, you incur maintenance costs through the life of that equipment. On the other hand, when you lease, the company leasing the equipment is usually responsible for maintenance.

Today, equipment-as-a-service (EaaS) financing offers several equipment leasing benefits. EaaS often includes maintenance of the equipment through a subscription model. Included maintenance can include routine checks, preventive care and corrective repairs. Every contract and provider is different, so it’s important to understand the details.

EaaS financing can also package usage-based billing for equipment with maintenance costs. Some financing providers even offer a structure where they own the equipment assets and lease them back to customers. In that way, the provider assumes the residual risk, eases the financial process and allows the customer to focus on core competencies.

Ownership

When you buy, the equipment is yours to use however you want for as long as you want (once you pay off any loans). However, equipment – especially heavy equipment and anything tech-related – depreciates over time. An asset’s value at the end of loan payoff could be substantially less than the purchase price.

Ability to access newer equipment technologies

When you lease, you have the ability to turn it in at the end of the lease’s term and lease newer equipment. This is extremely important for businesses that rely on current technology. They can not afford to be saddled with obsolete equipment, and must find ways to stay up to date.

Leasing equipment with newer technology can increase productivity, improve accuracy and reduce costs, avoid equipment obsolescence and add more efficient machines to a fleet. For contractors, the latest equipment is a powerful bidding differentiator, and can enhance worker productivity.

In addition, the lower monthly payments that generally come with leasing (versus purchase loan payments) may enable you to afford better, or newer, equipment than you could obtain if buying outright. For example, maybe you could only afford to purchase used equipment. But when leasing, you could get new equipment with the latest technology at a lower price.

Efficiency

When leasing, a company can often time industrial equipment lease terms with projects. If needs increase, the company can lease additional equipment. When projects and payments end, they return the equipment. This eliminates the risk of expensive new machinery standing idle between projects. In the same vein, leasing can improve uptime, because replacements are typically available immediately in the event a rental machine goes down on the job.

Since most industrial-equipment rental companies stock a wider selection than any single construction company could own, contractors who lease have greater flexibility to bid on projects. They know that they can access the right equipment if they get the job, and avoid risk if they don’t.

Tax implications

In making the leave-versus-buy call for industrial equipment, businesses will need to consider tax implications. Both buying or leasing can offer tax deductions that can reduce taxable income. A tax accountant can advise on your particular situation.

Making the decision

The demand for lease options continues to grow as many companies find that leasing an effective alternative for tightening capital-expenditure budgets. Leases also are ideal for companies that need equipment upgrades on a consistent basis.

Yet every company and every type of equipment calls is unique. Mitsubishi HC Capital America is a commercial finance company that provides customized solutions to help organizations of all sizes accelerate growth. If you would like to find out more about your options to lease or buy equipment, contact us today.