Leasing Vs. Buying Machinery – What Is The Best Option To Go For?
Machinery represents an immense expense for those who are involved in any type of production. One of the key decisions you need to make when it comes to business machinery is how you are going to finance it. Will you lease the machinery? Or, should you buy it outright? Let’s take a look at both options in further detail.
Let’s begin with purchasing. The manager of the company will use equity or will lend money in order to finance the purchase of the machine in question. There are even some companies, like Mills CNC, which have their own financing solutions, enabling you to eliminate the option of having to find a lender.
With purchasing, the ownership of the machine in question is then the owner of the company’s. This individual is then responsible for all payments related to the machine, such as; non-warranty repair costs, tax, insurance and making the loan repayments if applicable. In addition to this, they will also have the costs of running the equipment. This includes the likes of routine maintenance, lubricants and fuels.
It is important to consider tax in more detail. When you buy machinery there is a tax depreciation schedule which is set up and, therefore, the manager will take depreciation deductions. The interest component of the loan, if applicable, will also be tax deductible.
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On the other side of the spectrum, you have the process of leasing instead of purchasing. What is a lease? Essentially this is a long-term contract which grants you the use of the machine in question in exchange for cash – you will either pay the money upfront or per each year, quarter, month or whatever is agreed with the company you have leased the machine off. The difference is that these are specified lease payments instead of loan payments. These contracts tend to last for a period of three to five years.
Of course, if you go for this option you will not have ownership of the machinery and so a lot of business managers like to avoid this choice when possible because they feel like they have nothing to show for their money. On the flip side, you will still have many of the costs that are entailed for those who own the machines. This includes all operating costs and repairs that are not covered in the warranty. If you wish to cancel a lease you will incur a penalty. Furthermore, lease to buy is an option. This is whereby you lease the equipment for a set period of time and then you have the option to purchase it at the end of the contract. Hopefully, by taking a look at the two main options at your disposal you have a better understanding of acquiring machinery, and you will be able to deduce what route is going to be the best for you to go down. There is no right or wrong answer – it is all about figuring out what works for you and your business.
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