Leasing vs. Buying Computer Equipment: Which is Better?
by Fundid on Jun 22, 2022 4:09:00 PM
According to a 2019 study by Deloitte, 99% of small business owners reported using at lease one digital tool for their daily business operations. With that said, at some point as a business owner you will need to make a decision on purchasing computer equipment.
Depending on the number of employees you have and whether their work is reliant on a computer, buying appropriate equipment can be pretty expensive. You’ll need to decide whether you can purchase the equipment outright or finance it. The choice between leasing vs. buying computer equipment comes with a lot of implications. We’re breaking down the pros and cons of buying vs leasing computer equipment.
Types of Computer Equipment Your Business Might Need
Most companies require at least some computer equipment to run efficiently, regardless of what industry you work in. Common types of computer equipment that businesses purchase include:
- Network equipment
Determining whether leasing vs. buying computer equipment is the right choice for you will depend on your business needs and financial situation.
Buying Computer Equipment — Pros & Cons
When you’re considering whether buying your computer equipment is the appropriate method, consider the advantages and drawbacks of your decision.
The main benefits of purchasing computer equipment outright include owning the equipment and potential tax deductions. When you own your equipment, it is yours to do with as you please. You won’t need to make monthly payments to a lender for the cost of the computers or other tech equipment you buy.
In addition to owning the equipment outright, you’ll be eligible for certain tax benefits. Computer equipment purchased for less than $2,500 can be written off as a one-time expense under the Section 179 deduction.
If the equipment you purchase is worth more than $2,500, you can write off the depreciation for the equipment over its appropriate life span.
Purchasing your computer equipment does come with some drawbacks. The most obvious disadvantage is that you’ll need to have the money available to pay for the equipment upfront. This can cost thousands of dollars, especially if you have a lot of equipment to buy.
Computer equipment that is purchased outright will need to be maintained by the owner. Unless you have an insurance policy or warranty on your equipment, you’ll need to pay for any necessary repairs out of pocket.
Finally, computer equipment doesn’t last forever. Certain types of equipment typically need to be replaced every few years to keep up with technological innovations. New equipment will need to be purchased in future years to stay afloat of any technological changes and as you hire new employees.
Leasing Computer Equipment — Pros & Cons
Can you lease a computer? The short answer is yes, you can lease computers and other IT equipment. There are companies that will lease computer equipment for businesses at varying term lengths. Often computer equipment leases can be 24, 36, or 48 months long depending on your preference. Just like with larger equipment leases, if you choose a shorter term you will pay more each month, but you may end up paying less over the lifetime of the lease than if you choose a longer term with lower monthly payments.
You may consider leasing equipment rather than buying it outright if you don’t have the cash flow available or your company is in a field where you need access to the latest technology. If you’re thinking about leasing your computer equipment, that decision also comes with advantages and disadvantages. Here are some of the pros and cons of leasing IT equipment.
Obtaining a computer lease can make it easier to upgrade your technology. The benefits of leasing vs. buying computer equipment are many.
Companies heavily reliant on the newest technology will appreciate quick upgrade options — especially in the software and IT sector, where old equipment can make a difference in employee performance and product capabilities.
If you choose to lease your computer equipment, your company will have much lower upfront costs. Rather than spending thousands of dollars at once for all your equipment, you may only need to make your first month’s payment.
In some cases, leasing companies require a down payment at the time of purchase, but this will be much less than paying for the total cost of the equipment upfront.
Computer leasing for small businesses is also often the better option if you don’t need the equipment long-term. For example, if your company needs a server for a short-term project, you can lease the equipment for a short period. You can either extend the lease or return the server to the leasing company at the end of the period.
When you lease computer equipment, you don’t own it. You must use the equipment per the leasing provider’s terms and conditions. If you plan on using the equipment for other purposes, or if you anticipate faster wear and tear due to heavy use, you’ll need to consult the terms of your lease agreement to determine whether it’s allowed.
Lease agreements come with financing costs. To use the equipment for business purposes, you’ll need to pay interest to the leasing company and sometimes upfront fees for transaction or administrative costs. The expenses for financing equipment can add up quickly, and you’ll have to determine whether financing is worth the additional cost.
Finally, to lease equipment, you’ll need good credit. Most leasing companies won’t work with businesses that haven’t been established very long or don’t have a decent credit score. This can be a hindrance for business owners who are newly established.
Other Options for Buying Computer Equipment
If you don’t have the cash available to purchase your computer equipment outright, and leasing isn’t a feasible option, there are other lending options that you can use to buy your new technology.
Business Equipment Loans
Business equipment loans are designed especially for companies that need to purchase equipment. These loans allow for business purchases up to a specific amount and come with a designated term. Most equipment loans last anywhere from two to seven years.
Most often, they have a fixed interest rate, allowing companies to plan for repayment. Equipment loans are often easier for newer businesses to qualify for since the equipment itself can be used as collateral.
Unlike an equipment loan, a term loan does not specifically need to be used for equipment. Depending on your needs, you may choose to use a term loan to purchase your computer and IT equipment. With a term loan, you can get access to capital in a lump sum that you repay back over a period of time.
A term loan can be a good choice if you have a lot of computer equipment as well as other cash flow needs to take care of at once. They may allow you to take advantage of lower interest rates as well.
SBA loans are available for highly qualified applicants. They offer attractive terms and reduced interest rates, which can lower borrowing costs to purchase new computer equipment.
Equipment loans through the SBA program may be obtained for 10, 20, or even 25-year terms. While this length of time for borrowing often exceeds the life of technology equipment, it is helpful if a company needs the loan for other non-computer equipment as well.
Line of Credit
A line of credit can be an excellent option for businesses that struggle with consistent cash flow. It can also be a great choice for companies that don’t meet some of the stricter qualifications for leasing or certain loans. A line of credit isn’t something you must use specifically for computer equipment like some other financing options.
For this reason, it can be a great choice for companies who want to purchase their equipment outright and want the ability to be flexible with their financing for equipment and other expenses.
Getting a line of credit can also be a great idea if you’re unsure how much equipment you’ll need to buy, or you’re not ready to purchase it all at once. You only have to pay back what you use, but you always have the balance on hand for unexpected expenses.
Fundid Capital offers equipment loans, term loans, lines of credit, and other financing options for business owners seeking to purchase new computer equipment for their company. These loans are typically easier to acquire than traditional SBA and bank loans, which often have a high administrative burden and require high credit scores.
Growth capital through Fundid Capital is perfect for businesses that have been operating for at least six months, generate at least $4,000 in monthly revenue, and have at least a 550 FICO personal credit score. Applying to Fundid Capital is fast and easy and requires no obligation or hard credit inquiry.
Options for Leasing Computer Equipment
Most companies that offer computer equipment such as laptops and desktop computers will have their own leasing plans. When considering leasing vs. buying computer equipment, it’s essential to understand the terms of your leasing agreement and what is required. There are two types of leases: a capital lease and an operating lease.
A capital lease is closest to a regular loan. Under a capital lease, any equipment acquired is recorded as an asset. The company will gain ownership of the equipment following the lease period, and there is a bargain purchase option if the company decides to end the lease early.
Capital leases enable the company to obtain the tax benefits of owning the equipment, as the change in value as it depreciates can be recorded for income tax purposes over the life of the loan.
An operating lease is quite different. Ownership of the equipment is not transferred to the company. The expense of the equipment is recorded monthly as a regular operating expense on the income statement.
Following the end of the operating lease, the equipment is returned to the company, and new equipment may be leased. Terms for an operating lease are often shorter than for a capital lease.
Determine What Is Best for Your Business
Whether you choose to buy your computer equipment outright or lease it, there are many options available to help your business grow.
Ready to purchase computer equipment to help your business grow? Learn more about Fundid Capital to find out how you can get capital to grow faster.