Owning or leasing construction equipment is a big decision. Lee Warren, Sales Support Manager for Cat Financial, provides insight into leasing versus owning equipment in his recent blog, Lease or Own: Which is the Better Option for You? Lee states, "Owning and leasing equipment offer distinct financial advantages." Lee discusses the importance of understanding every option and knowing how the options can affect your business. Having the right information is key to making the right choice.
Benefits of owning equipment
- Purchasing from working capital or cash reserves may be better for acquiring equipment at the lowest cost
- Service fees, finance charges and interest expenses are eliminated and ownership is immediate
- Equipment depreciation can be listed as a tax deduction that allows the taxpayer to recover the cost for the equipment
Benefits of leasing equipment
- Free working capital for other investments while not affecting the borrowing power or line of credit
- Lease payments can be a tax deductible business expense, reducing tax liabilities
- Customers have a variety of leasing options
Types of equipment leases
- Finance Lease. A capital lease designed for customers who want the option to own at the end of the lease. This option provides the same tax benefits as ownership including equipment depreciation, lower payments and equity buildup.
- Flex Lease. Designed for customers who want a finance lease with the option to return equipment after a stated interval or prior to lease termination. Customers can return the equipment at lease-end, or they can exercise a final bargain purchase option.
- Tax Lease. An operating lease that qualifies for off-balance-sheet financing and allows the leaseholder to make the lowest possible payment. On the other hand, tax leases do not build equity and cannot be modified during the life of the contract. At the end of the lease, customers may purchase the equipment or return it.
Contact Marry Stratton to discuss your leasing and purchasing options.