Buy vs lease – this question pops up more and more for small and medium size businesses. Each business owner’s or organizations’s situation is unique, however, and the decision to buy or lease business equipment can be made in each case, with consideration to organization’s situation.
Who can Benefit from Leasing Computer and Network Hardware Equipment:
- Business owners with limited capital
- Organizations in need of equipment that must be upgraded relatively often
Hardware leasing pros:
Keeping up with Life Cycle: The usual lease runs about two to three years, – also an average term for the technology to get upgraded. Leasing computer equipment allows companies to keep up with technology better. When you factor in depreciation of the equipment over the years, leasing may be more attractive to smaller companies on the budget.
Maintaining Cash Flow: Leasing helps contain immediate cost, helping company to maintain it’s cash flow. Start-up or rapidly growing companies would benefit from this option – this way money spent on leasing the computers becomes an operating expense.
Less Paperwork: One of the best bets is to lease directly from a manufacturer or vendor. Although some vendor’s run credit checks on the companies they lease to, typically small business owner does not need to obtain a loan from the bank of venture capitalists to get the equipment, affording them greater operational flexibility.
A revolving line of credit for inventory and customer receivables is a good strategy if you plan on leasing your equipment.
Maintenance: Another important point is leasing allows your company to focus on business, while leasing vendor is focused on equipment service, patching, update support and warranties for your hardware.
Hardware leasing cons:
Long-Term Cost: In general, leasing an item is almost always more expensive than buying it: there is no equity in the leased equipment. In some cases, however, with ever-changing technology some equipment may become obsolete by the end of the lease, and in this scenario lease may not be of a significant disadvantage.
Long-Term Commitment: When signing a lease you are obligated to make payments for the entire lease period regardless of how much use you get out of your equipment; typically large early termination fees apply if you need to get out of the lease.
Who Can Benefit from Buying Their Own Computer and Network Hardware Equipment:
- Established businesses.
- Organizations in need of equipment that has a long-term life cycle.
Hardware Purchasing pros:
Ownership: owning an important reason for purchasing versus leasing hardware, but is usually beneficial for the type of equipment or property with long lifetime, that will not be outdated in the near future. If you expect your hardware to last you several years and not to become obsolete in the next two or three, owning it may be a better option.
Tax incentives: Section 179 of the Internal Revenue Code allows you to fully deduct the cost of some newly purchased assets in the first year on purchases totaling less then $410K. Tax incentives are attractive for some businesses. Even when some equipment may not be eligible for the Section 179 deductions, there are still some tax breaks applicable through depreciation deduction – consult with your accountant for more information.
Hardware Purchasing cons:
High Cost of Investment: Initial cash payments may be too much for some businesses. Even if you plan on borrowing the money and making monthly payments, most banks require a down payment of around 20%, and venture capitalists may ask you for as much as 50% – and did we mention more paperwork?
End of Life Cycle – Disposition: When your own equipment gets too old, you may replace it with a new one. What to do with old hardware? With leasing, disposal becomes vendor’s responsibility, and removing any data from hardware can usually be performed, too. If you buy your own, you are responsible for the equipment disposal to be done in an environmentally appropriate way, in accordance to your local governing rules, AND you must remove and destroy all sensitive data that may have been stored in it.
More Upkeep: when you buy your own equipment, you (your organization) are responsible for keeping up with upgrades, updates, patches and troubleshooting when need for it arises.
So, you need to make a decision – to Lease or to Buy?
Let us help you narrow down your lease versus purchase choices the options that make sense to you and your business.