buying versus leasing which option is better?

BUYING (VS) LEASING

Which Option is better for you?

A loan or a lease? It usually depends on each business' unique situation, but there are four key factors that should drive the decision-making process: length of ownership, cash flow, ability to obtain financing, and tax advantages:

Length of ownership::

A loan is the best fit for businesses looking for long-term ownership, usually seven years or more. The equipment would be considered an asset and offer equity value.

A lease is a better fit if the equipment is for short-term use, usually three years or less.
This is often the case with technology equipment that has the potential to depreciate rapidly, or for equipment needed on a project-basis. A lease provides the ability to upgrade equipment easily to meet your changing needs.

If the useful life of the equipment falls between three and seven years, the next three factors should be stronger driving forces.

Cash Flow::

The first step is to determine why you're financing the equipment. If you view the finance agreement as a short-term solution and want the ability to pay the equipment off early, a loan is clearly the best option.

But, if cash flow is tight, a lease may be a better solution (even if long-term ownership is the intent). With an equipment lease, there is no down payment, and soft costs -- such as installation and training -- may be rolled into the finance agreement. You'll have immediate access to the equipment with little-up front investment, thereby freeing up cash for other expenses and investment.

Ability to obtain financing::

If you need financing for other reasons, you may have difficulty obtaining a loan for your new equipment. In that case, leasing can get you the equipment you need, and it doesn't restrict your ability to borrow additional funds because leased equipment doesn't have to show up on your balance sheet.

Tax Advantages::

Tax advantages can also drive the decision to finance equipment through either a loan or lease. With both loan and capital leases, the equipment is depreciated as an asset. With all other lease options, up to 100% of the lease payment can be deducted pre-tax. For complete details and direction, consult a tax advisor.

Comparing Financial Strategies

Attribute	Leasing	Loan	Cash
Interest Rate	Fixed Rate	Fixed or Floating	None
Speed of Approval	4 hours for deals under $100K 48 hours for deals over $100K	Days to weeks	Instant
Down Payment	Typically only 1 or 2 payments up front which are applied to the balance	10-20% of the total amount	100%
Financial Statements	Not required for transactions under $150,000	Usually required regardless of amount requested	None
Tax Benefits	Lease payments are 100% tax deductible when shown as operating expense	Depreciation taken over life of equipment	Depreciation taken over life of equipment
Equipment Obsolescence	Leasing can prevent obsolescence with tech refresh	End user owns equipment	End user owns equipment