Buying Vs Leasing:
The Leasing Advantage
• Owning equipment requires the buyer to be responsible for the entire life of the equipment
• Equipment owners are responsible for tracking the asset through its entire life cycle.
• The owner of equipment must manage all maintenance costs, interest, taxes, and insurance.
• The owner bears all the risk of equipment devaluation. Obsolescence must be tracked by the owner.
• Owners must manage the disposal or selling of outdated equipment. This can slow down the upgrade process.
• Owners must manage asset liability on their books. Financial accounting standards require owned equipment to appear as an asset with a corresponding liability on the balance sheet.
• Buying equipment has a greater, immediate impact on cash flow, either through an outright purchase or through loan payments historically higher than lease payments.
• Leasing equipment requires the user to be responsible for the equipment for just as long as he or she is using it and in possession of the asset.
• Lessors frequently offer asset management services as part of the lease, transferring the responsibility for tracking the equipment to the leasing company.
• In many leases, the burden of maintenance, interest, taxes and insurance is managed by the lessor.
• The end user transfers all risk of obsolescence to the lessor since there is no obligation to own equipment at the end of the lease.
• Leasing allows for easier upgrades, including master leases that allow for additional equipment to be acquired under original terms and automatic upgrades to new equipment and technology.
• Leased assets are expensed when the lease is an operating lease. Such assets do not appear on the balance sheet, which can improve financial ratios.
• Leasing usually has a lower impact on cash flow due to lower payments.