The following is a list of pros and cons that you should take into account before deciding to lease equipment.
The first is property. The biggest disadvantage is that at the end of the contract, you are not the owner of the equipment. Obviously, this may very well be an advantage, especially in the case of computer equipment where the technology changes fast.
Total Expense. The cost of leasing equipment is generally higher than the purchase, but this is only assuming that you do not need a loan to buy it. Let us say that you are leasing computer equipment for a total of $5000 for 3 years, and that you pay a fee of $40 a month, the total cost would then be $7200.
Financing search. Being granted a loan is a long and difficult process. On the one hand, a financial institution will demand documentation that shows them your credit history for the past two to three years. On the other hand, an equipment leasing company will only ask for your credit history of the previous semester. This is clearly an advantage of equipment leasing.
Increase cash flow. One of the reasons why people prefer equipment leasing is the increase in working capital. When you do not have to spend a great amount of money in equipment during the first year, then you have more availability of funding fore your operations.
Leasing equipment may mean that you pay more taxes. When you do not buy equipment you reduce the amount of assets in your books and therefore depreciation. Equipment leasing will be registered as commercial expense and your books will not show any asset acquisition.
Equipment leasing has an advantage when it comes to high technology equipment. Computers and state-of-the-art machines have a flaw, they lose their value faster than any other asset, which means that after two or three years they may be obsolete. Technology moves extremely fast, and it may be costly for you to buy expensive new equipment that will not be as efficient after a few years. However, if it is your company’s policy to move equipment from one department to another then buying it would not be so negative.