When considering technology for your business, the question often isn’t what to buy, but rather how to afford it. Deciding between leasing and buying IT equipment can significantly impact the financial success of many small and medium-sized businesses in the long run. A strategy that works well for one company may be harmful to another, as there is no universal solution.
Here we break down the pros and cons of both, show you how costs are real, and then give you the roadmap to figure out which is the right strategy for succeeding in your business in this guide.
If you’re looking to move up your server infrastructure or expand your remote workforce, you need to know about your IT equipment financing options.
The Big Decision: Lease vs. Buy
Lease vs. Buy is usually about cash flow and technology needs, per the companies in question. If your business needs to be on the cutting edge and technology is moving at warp speed, you may be looking at leasing. If you lean towards owning assets and long-term savings, buying may be the way to go for you. But first, let’s define each other (before we dig further).
With buying, it is a capital expense once to own the equipment itself.
Leasing is kind of like renting equipment or a monthly fee, usually with an option to upgrade or purchase at the end of the lease.
The financial and operational footprint of each method is different.
Pros of Leasing IT Equipment
1. Lower Upfront Costs
Leasing allows you to unlock capital. For example, you may spend $50,000 for leasing rather than purchasing a brand-new server or two for as little as $1000 a month over multiple years. This keeps your cash flow (which you need for growth and the ever-present unexpected expense) intact.
2. Always Current
Tech buzzword bombast flies by so fast. IT leasing enables the practice of replacing hardware every 5 years or so with minimal upfront down payments. You always have the latest gear, so hot spares or compatibility issues are usually not a concern.
3. Tax Benefits
Lease payments may be fully deductible as an operating expense (depending on the state). This could shelter one from taxes to some extent, and thereby leasing seems to be a more tax-savvy choice for small amounts.
4. Flexible Terms
The leasing provider will have flexible terms; you can get upgrades, early buyouts, or return and renew provisions. This is perfect for businesses that are growing rapidly or looking to embrace a digital transformation.
Hiring a lease structure expert to help guide you during the process?
Meet with the experts at Starting Gate Financial, and they will help you find the best IT equipment financing program for your company.
Downsides of Leasing
1. Higher Long-Term Costs
Leasing does have the cash flow of lower monthly payments, but over time, the total amount could be more than the purchase price. It would cost you about $60,000 in 5 years for equipment that would have been $40,000 straight up (yes, that high of a number).
2. Limited Customization
Equipment you have to lease will usually have some lease terms with restrictions. This means you won’t benefit financially from your IT infrastructure, because leases are going to prevent you from upgrading or customizing a given system as much as you want (some of the options here include specific configurations of your environment for support purposes).
3. You Don’t Own It
You will be essentially renting the equipment unless you have it done at the end of your contractual term. Which means you do not put any equity in that asset.
Pros of Buying IT Equipment
1. Total Ownership
Buying means that you also own the item and have full rights to the asset. There are no limitations or alternatives (including modifications) to use—the asset can be sold out.
2. Total Cost Less
When equipment will be used for 5-7 years or more, you will generally have to buy it. No monthly payments, no interest, and you can even turn a small profit with resale.
3. Long-Term Asset
Your balance sheet will show the value of your owned IT equipment as a balance sheet asset, which will help your business in obtaining future loans or investments.
4. Depreciation Benefits
Depreciation (expenditure over time, which will offset taxable income). You can also take advantage of Section 173 of the IRS code (IRS Source) and get accelerated depreciation in many cases.
Drawbacks of Buying
1. Expensive at the gate
The purchase is a very expensive initial outlay. It is money you cannot use to market, develop the product, or hire people, and here lies half the reason why it took as long as it did for SaaS to emerge as the dominant space.
2. Obsolete Risk
The technology goes out of fashion quickly. The next 3 years, and you are left with outdated infrastructure and replacement efforts on the other side of the calendar.
3. It is Your Maintenance
After the warranty has expired, all parts that must be replaced and repairs are no longer free. This could contribute to a lot of variance in your IT budget.
Leasing vs. Buying: Real-World Scenarios
Situation 1: Fast-Growth SaaS Startup
A fast-growing startup will need to constantly refresh laptops, servers, and software. Leasing gives them the room to manoeuvre and be elastic. It also trickle-feeds cost (versus large capital expenditures that could severely suck at their runway).
Scenario 2: Established Law Firm
A more stable environment, with few IT requirements (for instance, the law firm will probably rather buy than rent equipment, planning to use it for 5-7 years). They want to own, they can afford to pay up front, and they value long-term cost savings.
Financing Options: Tailored to Your Business
At Starting Gate Financial, we know that there isn’t a one-size-fits-all solution. That is why we provide business technology financing to grow without sacrificing your working capital with custom plans. Our services are as follows:
- Flexible lease options
- Lowest interest rates on loans
- Easier approval
- Personal attention
Whether you just need a refresh or are completely starting from scratch, check out the IT equipment financing solutions we offer today.
Lease or Buy?
Finally, which roof will save us more in the end?
Leasing: Leasing cash flow is tech current but usually comes with a higher sticker price.
While buying costs money up front, it provides lifetime savings and leaves you full owner.
Buying: cost-effective to buy for life and get all owner advantages, but at the cost of a bigger price tag upfront.
Different models for a good business model, growth aims, and upgrade technology frequency. Most companies are better served with the right mix of leasing some high-turn and purchasing core infrastructure.
Tips for Making the Right Choice
- Analyze Use Cases Through Lifecycle: How quickly does this equipment go out of date?
- Tax Implications to Think About: Meet with a tax professional on the subject of depreciation and write-offs.
- Determine your return on investment: Question what the equipment will do for your money.
- Partner with a Relationship Coach: Go it alone — work with a partner, e.g., Starting Gate Financial, to enable you to discern the best approach.
Conclusion
Technology drives modern business success. How you finance your IT investments can significantly impact your budget and competitive edge. By weighing the pros and cons of IT leasing versus buying, you can make informed decisions that foster long-term success.
Allow Starting Gate Financial to unlock smarter, faster, and lower-cost technology financing for your SMB or mid-market business.
Contact us today, and let’s build your IT future!