For many businesses acquiring and maintaining equipment is one of the biggest expenses. An alternative to buying equipment outright is leasing manufacturing equipment, which may be the best option for most companies. What are some of the advantages and disadvantages of leasing equipment, instead of purchasing?

One of the biggest reasons many companies prefer to lease equipment is lower upfront costs. To purchase tools and hardware, in most cases, requires a down payment as well as either financing the rest of the cost or paying the entire amount in full. Paying out large initial sums may cause some businesses to struggle financially. However, leasing equipment requires little to no upfront costs, allowing the business stretch the lease payments over time. Another benefit of making lease payments is that they are typically tax deductible as a business expense and they are regular, fixed payments which will make budgeting easier from month to month.

Another advantage of leasing equipment instead of buying it is that when the time comes to upgrade the equipment the process is much simpler. When equipment that has been purchased becomes obsolete, which will eventually happen to all hardware in most industries, new equipment has to be purchased in order to upgrade. However, with leasing equipment the business would merely have to wait until the completion of their lease term. At the end of the lease agreement the business would have the option to upgrade to the latest equipment models for their next lease.

Leasing manufacturing equipment will also eliminate the risk of depreciation when tax deductions are considered. As mentioned, the lease payments on equipment can typically be written off as tax deductions. This is true despite any depreciation in the value of the tool. However, when equipment that is owned is considered for deductions significant depreciation of value may lower the amount a business can claim.

On the other hand, there are also some advantages that may come from purchasing certain equipment. For instance, in industries that use heavy machine shop equipment or fabrication tools it may be best to purchase the equipment. In those cases, the tools do tend to hold their value and the overall cost to lease may be greater than the cost to purchase the equipment in full. In either case, it is best to investigate all of your options before making your final decision regarding whether buying or leasing manufacturing equipment is the best thing for your business.