Your business needs new equipment and now you’re faced with a tough question – to lease or not to lease, or rather - to lease or buy?
What are some of the things that you, as a business owner,should consider before making that decision?
Rent/Lease
Pros
· No money down required (no initial capital)
· Monthly payments are fully deductible (business expense)
· The lease interest rate might be lower compared with the borrowing rate
· If operating lease, it is off the books hence no impact on quarterly compliance to the bank
Cons
· Asset returns to lessor at the end of its life. Lessor to benefit from the asset’s residual value
Own
Pros
· Asset may be sold for its residual value at the any point of its life
· Your business can claim CCA deductions and save on tax
Cons
· High initial cash outlay (when paid by cash)
· Only interest payments are tax-deductible (in case purchase is funded by debt)
· There might be special covenants tied to the financing (in case purchase is funded by debt)
In addition to the above, it's important to calculate the potential savings from buying the equipment versus leasing it, as that may not always be the case (depends on the lease terms). Furthermore, since every business is different in nature, it's important to analyze the decision from different perspectives before coming to a final conclusion.
For additional assistance and consultation, you can always contact us here.