Article Written By: Clayton Arnold
Tens of thousands of businesses use industrial and commercial equipment to function. While having brand new equipment is preferred by some, it’s not always realistic or practical for companies to buy new. That’s why businesses looking to save cash often consider alternatives to outright purchases of new equipment. Some companies opt to lease machinery, while others buy used equipment. Which is right for your business? Here are some of the pros and cons of leasing new vs buying used equipment to help you evaluate the options:
One of the biggest advantages of leasing equipment is no or little upfront costs. If cash flow is an issue, this is a positive attribute. You’ll have fixed monthly payments instead of a lump sum at the time of purchase. Plus, you can get the latest machinery and equipment, which can increase your productivity. At the end of your lease term, you’ll pass on the cost of obsolescence to your leasing agent. You can lease newer equipment after your lease period, and not have to worry about aging machinery that may or may not perform as well as brand new machinery.
On the other hand, leasing can cost more in the long run. Monthly payments may be manageable, but you’ll pay more over the long term, plus the cost and sales tax if you decide to buy at the end of the leasing period. In addition, if you decide to upgrade or stop using the leased equipment, you still have to make the lease payments. Finally, despite making the monthly payments, at the end of the term, you don’t own anything.
One of the advantages of buying used is that the process is easy. While leasing involves paperwork, contractual agreements, and jumping through the hoops of leasing companies, buying used involves finding a seller and giving them your cash. In addition, used equipment is typically much cheaper than new equipment. And buying used equipment means acquiring an asset that will form part of your balance sheet.
For additional information on buying used machinery, read our guide: The Pros & Cons of Buying Used Industrial Equipment.
Conversely, buying used equipment does mean an outlay of cash or taking debt. It can also involve taking on the risk of a bad purchase. You must also perform and pay for all repairs and upkeep for the equipment, and when the equipment becomes obsolete, it is your responsibility.
What’s the Verdict?
Leasing reduces a company’s cost of ownership and frees up cash flow. However, buying used can save a lot of money long term. Which is better? It depends on your company’s situation. If you need several pieces of equipment and simply don’t have the capital, leasing may be the best way to go. However, if you have access to cash or low-cost debt, buying used can provide better returns. Finding a good source of used equipment is critical – you can buy direct from sellers, go through a broker or go to an industrial liquidation marketplace to find the right equipment for your business.
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