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Written by Dennis Velco
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There are many issues to consider when leasing IT equipment. Here we've outlined the top items to assist you with looking at the whole picture:
- Ownership -- The most obvious downside to leasing is that when the lease runs out, you don't own the piece of equipment. Of course, this may also be an advantage, particularly for equipment like computers where your technology needs may change very quickly.
- Total expense -- Leasing is almost always more expensive than buying, assuming you don't need a loan to make the purchase. For example, a 3-year lease for a $5,000 computer system (at a typical rate of $40/month per $1,000) will cost you a total of $7,200.
- Finding funds -- Lease arrangements are usually more liberal than loans. While a bank might require 2-3 years of business records before granting a loan, many leasing companies evaluate your credit history on shorter terms (6 months is fairly typical). This can be a significant advantage for a start-up business.
- Cash flow -- This is the primary advantage to leasing. It eliminates a large, single expense that may drain your cash flow, freeing funds for other day-to-day needs.
- Taxes -- Leasing almost always allows you to expense your equipment costs, meaning that your lease payments can be deducted as business expenses. On the other hand, buying may allow you to deduct up to $19,000 worth of equipment in the year it is purchased (as part of first-year expensing); anything above that amount gets depreciated over several years. With the first-year expense deduction, the "real cost" of a $5,000 computer system may be only $3,400.
- Technology needs -- Technology advances at a rapid rate. If you buy a computer or other high-tech equipment outright, you may find yourself with outdated equipment in 2-3 years, with no discernible resale value. Leasing may allow you to try out new equipment configurations, and update your system regularly to stay on top the technology curve. On the other hand, if you have a "pass-down" policy in your company (where older technology gets used by certain departments), buying may be more effective.
If you missed the initial postings they are:
- Leasing/Purchase IT Equipment
- How leasing works
Over the coming days I will be completing this series of postings the following short sub-topics:
- Terms to look for in a lease
- When a lease is not a lease
- Are Computers Becoming Another Utility Cost?
- What happens at the end of a lease?
- Leasing Agreement Management
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