Should your business lease or buy IT storage equipment?

Leasing equipment can be a good option for business owners who have limited capital or who need to update/upgrade regularly; whereas purchasing equipment may be a better option for established businesses or if equipment will be used for more than a few years.

There are advantages and disadvantages to both.

Leasing Equipment

Leasing  IT storage equipment preserves capital and provides flexibility but may cost you more in the long run.

Advantages of Leasing Equipment

Less initial expense – Allows you to acquire assets with minimal initial expenditures.

Tax deductible – Payments can usually be deducted as business expenses on your tax return, reducing the net cost of your lease.

Flexible terms – Easier to obtain and have more flexible terms than loans for buying equipment. This can be a significant advantage if you have bad credit or need to negotiate a longer payment plan to lower your costs.

Easier to upgrade IT storage equipment – Allows businesses to address the problem of obsolescence.  You are free to lease new, higher-end equipment after your lease expires or trade-in during the terms of your lease to upgrade with a renegotiation of terms.

Disadvantages of Leasing Equipment

Higher overall cost –  Almost always more expensive than purchasing. However, with flexible terms and leasing periods you can trade-in your equipment early if necessary and upgrade your infrastructure with a simple update to your lease agreement.

You don’t own it – You don’t build equity in the equipment. Unless the equipment has become obsolete by the end of the lease, this lack of ownership can be considered a disadvantage.

Obligation to pay for entire lease term – You are obligated to make payments for the entire lease period even if you stop using the equipment.

Buying Equipment

Ownership and tax breaks make buying IT storage equipment appealing, but high initial costs mean this option isn’t for everyone.

Advantages of Buying Equipment

Ownership – A primary advantage of buying equipment. This is especially true when it will have a long, useful life and is not likely to become technologically outdated in the near future.

Tax incentives –  Section 179 of the Internal Revenue Code allows you to fully deduct the cost of some newly purchased assets in the first year. For instance, if you are in the 25% tax bracket and you purchase $100,000 in IT storage equipment this year, the net cost to you is only $75,000.

Possibility of depreciation deduction – You can receive tax savings for almost any business equipment through depreciation deductions.

Disadvantages of Buying Equipment

Higher initial expense – Initial cash outlay is high.  Borrowing money for equipment purchases may tie up lines of credit, and lenders may place restrictions on your future financial operations to ensure that you are able to repay your loan.

Getting stuck with old equipment – Ownership is perhaps the biggest advantage to buying IT storage equipment, but it can also be a disadvantage.  IT storage equipment often has very little resale value after a few years.