Many business owners just starting out might face the dilemma of whether to buy or lease IT equipment. This often leads to one question, “What are the pros and cons of leasing computer and IT equipment over buying?”
Each year, many companies choose to procure new computer and IT equipment through leases rather than loans or making direct purchases. Companies that lease are smaller but this does not mean that larger organizations do not lease equipment. Leasing is the most widely used method of equipment-based financing in the United States. This makes up for about a third of the external financing of capital investment.
Pros Of Leasing Computer and IT Equipment
One of the major pros of leasing computer and IT equipment is that your equipment will always be up to date. Computers depreciate more than any other kind of equipment. Rather than remain stuck with obsolete equipment, you can upgrade it. Normally, this would be very expensive if you had bought the equipment out of your own pocket. Think about it. If you lease a computer for two years, at the end of the lease you have the option of selecting newer computers installed with the latest software, are faster and cheaper.
When you lease computer and IT equipment, you will have predictable monthly expenses. Depending on the type of lease agreement you get into, you can have your computers repaired and maintained when they breakdown. This shifts the cost of such extra costs over to the leasing company.
You do not have to make any upfront payments when leasing IT equipment. As a small business or a start up, cash flow can be a little tight and paying cash upfront can put a strain on your capital. To help make things a little easier on you, most computer leasing companies only require you to make a down payment of the first and last month after you have signed the lease; not before. In most cases, when you make this down payment, your monthly lease rates will significantly reduce.
Leasing computers enables you to keep up with your competitors. You can easily acquire the latest and most sophisticated technology that might be unaffordable to your company. This way, you will be able to keep up without tapping so much into your financial resources.
Cons Of Leasing Computer And IT Equipment
One of the downsides of leasing computer equipment is that you will have to pay for the equipment even when you are not using it. This will depend on the type of lease agreement you got into with the leasing company. Most companies will require you to make payments throughout the entire period while others may charge you a penalty for early termination of the lease.
Sometimes leasing might be a little more expensive than making an actual purchase. For instance, a $6, 000 computer would cost $7, 200 when leased for three years at $200 per month but only $6, 000 if purchased outright.
Lease terms can sometimes be complicated to negotiate and if not done properly, you can end up with unfavorable terms. Purchasing on the hand is much easier because you only have to negotiate the prices. There’s no paperwork to be filled and you won’t be asked for updated financial information.
Avoid The Risks
Despite the cons of leasing computer and IT equipment, you can still get favorable terms and make the whole process a little easier. The first thing that you should do is involve your attorney or a trusted financial advisor. They can spot any fishy statements in your lease and help you negotiate better rates.
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Secondly, you need to choose the right lease for you. For instance, when you choose the $1 buyout option lease and you do not intend to purchase the equipment at the end of the lease term, you will have wasted your money. $1 buyout option leases have higher monthly rates because at the end of the lease, you get to purchase the equipment at $1. You are better off getting into the fair market value lease because it has lower monthly payments and you will still have the option of purchasing the computer equipment at fair market value at the end of your lease or upgrade to newer technology.
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