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  • Find New Sources of Money to Finance Your Growing Business

    Game Plan

    In-Depth

    Lease, Don’t Buy, Capital Equipment

    While the appeal of owning your equipment is often strong, leasing can free up significant capital for small business owners. According to GE Capital, up to 85% of small and mid-size businesses lease equipment. It’s easy to understand why.

    Leasing capital equipment frees up cash for other financial needs of growing companies. Maybe you’re looking to expand, but can’t afford to buy new equipment. Or your industry changes rapidly, making your current equipment obsolete every few years. Leasing capital equipment:

    • Lowers upfront costs, compared to buying equipment outright
    • Reduces the chance that your company gets stuck with obsolete equipment, if your contract specifies upgrades
    • Transfers the cost of equipment maintenance to the leasing company, again according to the terms of your contract
    • Provides an income tax break, because you can deduct your leasing costs as a business expense
    • Offers an easier way to get the equipment you need if your company’s credit is iffy
    • Eliminates the hassle and cost of trashing outdated and sometimes environmentally harmful equipment

    Leasing also has disadvantages, including:

    • Potentially higher overall costs, depending on the length of the lease’s term
    • Continued payment for obsolete equipment—and even equipment you no longer use—if your lease doesn’t include upgrades and your term hasn’t ended
    • The inability to consider leased equipment an asset, a disadvantage if you need collateral to qualify for a loan
    • No depreciation deduction on your tax return, unlike the tax benefits of ownership
    Game PlanGame Plan

    Game Plan

    • Learn as much as you can about the pros and cons of leasing. The Small Business Administration and the legal website nolo.com offer basic information about leasing versus buying.
    • Talk to your association’s members or industry peers to learn which side of the buying-versus-leasing debate they take—and why.
    • For an experienced point of view, contact your SCORE office for advice on this and other business issues.