You have three main choices to consider when adding to your fleet: buying, leasing or renting. Which one is best for your business depends upon your individual situation. But here are some pros and cons to think about to help you make the right choice.
Buying builds equity
The main advantages of buying equipment is the residual or resale value and the asset depreciation that reduces your tax obligation. Once you’ve paid off the loan, you own the machine outright, and it becomes a valuable asset to your business. When the time comes, you can trade it in to reduce the cost of the next piece of equipment you buy. The only downside of buying is that your payments, upfront and over the life of your loan, will be higher because you are paying for the full value of the equipment.
Leasing lowers operating costs
With a lease you still agree to make monthly payments for a set period of time, just as you would if you were making loan payments on a purchased machine. However, with a lease, you’re only paying for the usage and depreciation of the machine, so your payments will be lower. Also, there can be no down payment, so leasing makes it easier to replace aging equipment with minimal capital outlay.
In addition to helping reduce operating expenses, leasing helps structure a more orderly and realistic schedule for replacing equipment before wear-and-tear and maintenance costs become too expensive. When the lease expires, you simply turn in the old equipment to your finance company. As a result, leasing is a more cost-effective way to keep your fleet stocked with relatively new machines.
Renting provides flexibility
Renting provides cost-effective access to equipment you only need every so often to perform jobs outside your usual scope. This allows you to bid on jobs you otherwise couldn’t compete on, and to expand your business base without a large capital outlay. It’s also a great way to try a machine before you buy, and to take advantage of the latest technology without suffering costly depreciation.
You can rent a machine for a day, a week, or a month—even up to one year. And your rental dealer will handle all the maintenance, which frees your budget for other expenditures. However, keep in mind that if you need a machine for, say, three weeks, it might be more cost-effective to rent it for an entire month.
Renting gives you greater choice
Having a good relationship with a well-stocked rental store gives you access to a vast array of complementary or support equipment. This can be very valuable if you are expanding your scope and going after those new jobs.
The bottom line is…if it’s a piece of equipment you’re going to use a lot, you’ll want to buy or lease it. If it’s something you’re only going to need for a short period or from time to time, it probably makes more sense to rent.
What’s your advice when it comes to leasing, renting or buying? Please post your comments below.