Lease vs. Buy?

Accountancy Resources

Lease vs. Buy?

Real Estate Author: Admin


Leasing or buying an asset can be a tough decision for any business to make. Which option works best for your company is contingent on a series of factors that every business owner or manager should consider.

  • What is your cash situation? If you are cash-strapped leasing may be your best option, as the cash outlay upfront may be too substantial if you were to buy an asset. Lease payments are also typically lower than financing the purchase of the full asset.
  • Will any bank covenants be impacted? When leasing you can incur large lease obligations on your balance sheet.

    For some companies, this could push you offside of certain debt covenants.

  • Tax implications: Lease payments are typically fully deductible, whereas only interest is if you finance the asset. How this compares to the amortization expense you can claim for tax purposes can often lead to leasing allowing you to reduce your overall tax bill.
  • Warranty and Condition: Some leases have limitations on the usage and condition the asset must be in when you return it. Exceeding the usage or repairing the asset at the end of the lease can drive the costs up substantially.
  • Time Period and Usage: Is the asset something you’re always going to need? When the lease expires will you need to lease a new comparable asset anyway? If your answer is yes to either of these questions you may want to buy.

All of these items are things you’re definitely going to want to consider when considering leasing an asset. Your answers, and the implications, could heavily factor into your final decision making on whether to lease or buy.