Should you lease or buy your manufacturing equipment?

There is a lot of debate within manufacturing companies if they should lease or buy their manufacturing equipment. If you buy manufacturing equipment, it will increase the value of your business. This will make it easier to obtain loans because you have expensive assets to use as collateral. On the other hand, if you buy manufacturing equipment, you run the risk of dealing with costly repairs and other problems that come along.

Your manufacturing equipment needs to be able to perform its duty to keep your business up and running. Several manufacturing companies have begun leasing their equipment because they cannot afford to buy it or they want to have the option of using the latest products on the market. No matter what decision you make, it will have an impact on the value of your business. Around 70 percent of small businesses in the United States lease their manufacturing equipment. Whether this is an oven, a copier, or printing press, small businesses are moving toward leasing because it is affordable.

New business like the option of leasing their manufacturing equipment because it means they do not need to obtain a loan to get the necessary supplies to get their business started. Business can lease practically any item they need and they do not need to worry about costly repairs. When you sign a lease, make sure you are signing one that allows you to simply pay for the routine maintenance of the machine, versus the expensive repairs. Always get a machine that is new or that has not been used by several other companies. The older the machine, the more wear and tear it has and it is prone to repairs.

When you lease manufacturing equipment, you are paying for the amount that the equipment will depreciate while you are using it. This is a cheaper investment for a business that does not have extra money lying around to buy the expensive machine. When you sign a lease, you also do not need to provide a down payment and you do not need to have any collateral.

Leasing will require that you make monthly payments to the rental company and you will need to sign a contract. At the end of your lease, you can choose to purchase the manufacturing equipment or you can decide to extend the lease. If you chose not to do either option, the leasing company will come back to claim their manufacturing equipment.

If you decide to purchase manufacturing equipment, you will need to have a good business score and personal credit score so you can qualify for the loan. If you buy manufacturing equipment, you will have extra benefits like long-term cost savings and you can sell the equipment to other companies in a few years and even turn a profit on it. You also have the option of keeping the manufacturing equipment for a long time and only worrying about paying for routine maintenance. If the equipment gets worn down, it will be prone to problems and you will be spending a lot of money on repair costs.

Another great benefit to buying manufacturing equipment is that you do not need to worry about a monthly payment to the leasing company. You also do not need to worry about penalties for early termination and you don't have to sign a contract.

It is up to your company to decide if leasing or buying is better for your company needs. Keep in mind that you can deduct 100 percent of leasing expenses if you are paying on a monthly basis; this is a big tax savings for small businesses. If you take out a loan to buy manufacturing equipment, you can deduct the interest on the loan.