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The advantages and disadvantages of leasing equipment for your manufacturing business

If you are setting up a manufacturing company you may be stuck on the question as to whether to buy or lease the equipment that you need. It is important to understand that there is not a stock answer to this question but rather you will need to consider the unique needs of your manufacturing business. Taking the time to check out both options will give you the information that you need to make the right decision. You should never jump to immediately leasing or buying equipment without first doing a sufficient amount of research. Here is what you need to know about the advantages and disadvantages of leasing equipment for your manufacturing business-

The advantages of leasing equipment are-
• You don’t pay the full cost upfront. If you are new business that is just starting out it is unlikely that you will have the cash flow to buy every piece of equipment that you need. This is what makes leasing so attractive. If you choose to lease you will most likely be able to get the equipment you need without having to borrow additional funds to buy equipment.
• You will be able to better determine your future cash flow. When you sign a lease agreement it will give you a fixed payment that you will have to make month after month. This payment and your interest rate won’t change. This means that you will be better able to match your required payments with your income.
• You may be able to deduct the full cost of the lease from your taxable income. Many manufacturing business owners choose to lease their equipment due to the sizeable tax advantages. You should check with your accountant to make sure they apply to you before making a final decision.
• You may not have to pay for maintenance and repairs. Some leasing contracts include both the maintenance and the repairs for the equipment that you are leasing. This can save you a great deal of money should you need to use it. In addition, even if you are responsible for the maintenance and repairs the leasing company can often get you a better price on replacements parts and service then you could get yourself.
The disadvantages of leasing equipment-
• You may find that the tax advantages are questionable-While there can be some tax advantages for you there also may not be. When you actually own the equipment you can claim a capital allowance that can be greater then the tax advantages described above.
• You don’t own the equipment. Simply put you are paying for a piece of equipment that you will never own. In some instances you may be offered a chance to buy the equipment after the lease is up but this is not always the case. In addition, you are at the mercy of the leasing company who may repossess the equipment during the lease for virtually any reason.
• You will have to come up with some cash when leasing-While you may not pay as much as if you are buying the equipment keep in mind that you may have to put down a deposit or make some of the lease payments in advance. In addition, sometimes manufacturers find that they can only lease certain pieces of equipment while others still have to be bought. This can make getting the equipment you need far more expensive then you thought.
• You may get stuck in an inflexible lease agreement-If you decide to lease that most likely will have to be your decision for as long as the lease runs. Very few lease agreements allow for early termination which can mean that you can be stuck paying for equipment that you no longer use or even want to pay for.

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