When purchasing a new server, a few workstation and supporting peripherals, costs can suddenly add up and create a large ticket item purchase. With the current state of the economy and budgetary constraints, it is increasingly important to make wise financial decisions with your business. Many times clients ask us about leasing and financing options and ask us to do a cost analysis for them. We always recommend that you consult your CPA and business banks regarding these issues. Though you will get a better rate from your bank, banks lend you money for purchasing, not leasing. When leasing, assuming that you have decided on the lease term (3, 4 or 5 years), you have two options. a) fair market value (FMV) at the end of the lease, or b) dollar buy out. FMV is decided based on the equipment’s worth at the end of the lease terms and dollar buy out means you pay a static amount and the equipment is yours.
Here are a few points about leasing.
- – Leasing converts a big cash price to a lower monthly payment, meaning that you can get the equipment you need today.
- – Leasing enables you to get around budget restrictions that prevent you from obtaining new equipment.
- – If you lease, you can generally deduct 100% of the monthly lease payment for tax purposes – If the payment was for a loan, you can deduct nothing.
- – Leasing permits you to use the equipment you need, for as long as you need it, for a low monthly payment that will never go up, even if interest rates skyrocket.
- – Leasing is a hedge against inflation: You will have acquired today’s equipment with tomorrow’s cheaper dollars.
- – Leasing prevents equipment obsolescence. When the lease term is up, return the equipment to the leasing company and trade up to a new model. Or, you can keep the equipment, either buying it or continuing to lease on a month-to-month basis.
- – Unlike some loan programs, leasing requires no down payment.
- – Leasing enables you to use the equipment without tying up your vital cash flow or credit lines.