Lease or buy tools and heavy equipment

No matter the size of your construction business, when you need new equipment, whether for the construction site or the office, you need to decide between leasing or buying. Knowing the advantages and disadvantages of buying or leasing will help you decide. It is also advisable to obtain the advice of an expert in tax matters and equipment leasing.

Cash Flow

If operating funds are limited, leasing (lease) can be an excellent option. Leasing equipment allows you to get what you need when you do not have as much cash available. Leasing rarely requires a large down payment, so you can get the equipment without affecting your cash flow too much. The terms of the lease are more flexible so that you can negotiate longer lease periods to reduce your monthly payment. If credit is the problem, when leasing equipment you will have to find someone to extend credit to buy the equipment.

In addition, leasing allows you to purchase a model of more expensive equipment or heavy machinery than you could pay at the time if you bought it. Having equipment with more advanced features and capabilities and technological improvements can improve your productivity and profits, and perhaps also the types of tenders in which you can participate, which makes the decision to rent an excellent option.

On the other hand, unless it is a condition for the lease, once the lease period is over, you will not own the equipment. If you want to keep the equipment in the long term and establish a net worth over it, try to negotiate the purchase option in your lease so that some or all of the lease payments are credited to the purchase price. With this type of lease, the purchase price is determined at the time of leasing the equipment.

Keep in mind that when you rent tools or machinery instead of buying, you are likely to pay a higher price for the item. To obtain the total cost of the equipment, compare the total cost of the lease with the purchase price and all financial charges.

Equipment update

If you lease equipment, you can often change it to a newer model. As the new technology comes to market, leasing companies offer incentives for you to change your used equipment for a new one and perpetuate the lease.

If you decide to buy the equipment, you are the owner. If you need to update it, you will have to sell your used equipment to acquire a newer one.

Tax considerations

The tax benefits can be very large. The monthly lease payments are usually tax deductible and depending on the type of equipment you are leasing and the length of the lease, you may also be able to declare the equipment as a financial asset, which further reduces your tax burden.

When you buy equipment, it is immediately considered a financial asset. Usually you can deduct the value of the equipment over five years; however, there are some changes to the tax laws that may allow you to deduct the total cost in the first year, which represents significant savings.

Consult a tax professional to be well informed about tax benefits.

Types of lease

There are many types of lease or lease. The lease of "operation" is very common. With that lease, the leasing company pays for equipment maintenance, taxes and insurance, which can further reduce the cost.

In contrast, with a "finance" lease, you are responsible for maintenance, taxes, and insurance costs. However, with a financing lease, the equipment is considered as "your property" from the fiscal point of view and tax incentives for equipment purchases apply.

The terms can be complicated, and some leases cannot be changed or canceled. It is common for a business to continue making payments even though they no longer use the equipment. Some types of leases allow cancellation of the contract, but that option usually comes with significant penalty charges.

All businesses have different needs and circumstances that affect the decision to lease or buy the equipment they need. Before deciding, create a cost and benefit analysis that considers the costs of financing, insurance and maintenance; the useful life of the equipment and the possibility of improving it; and the fiscal benefits and opportunities.

The advantages of renting equipment

If you need equipment for a particular project and you prefer not to buy it or lease it because you do not know if you will need the machine or the tool again, consider renting it. Rental equipment companies, such as The Home Depot Tool Rental Centers located in many Home Depot stores, have a wide selection of professional tools for construction, compaction, demolition, floor care, gardening, painting, plumbing and remodeling.

The tool rental centers are open more days and more hours to make it easier to rent the equipment when you need it and return it at the end of the rental period.