When it comes to capital equipment purchases, it can be a close call between what is best for your business -- lease or purchase? Cash flow, tax breaks and total cost are all things a contractor should consider. Entrepreneur.com offers this guideline for determine which financing option is right for your business.
| Cost | Lease | Purchase |
| What is the required down payment for the lease or loan? | ||
| What is the length of the lease or loan? | ||
| What is the monthly payment of the lease or loan? | ||
| Are there balloon payments associated with the lease or loan if any? | ||
| What is the amount of the balloon payment? | ||
| What is the cost of an extended warranty if purchasing one? | ||
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What is the total cost of the lease or loan (including maintenance and warranties) over its lifetime? |
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| Cash Availability | Lease | Purchase |
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Is there sufficient cash flow to handle the monthly lease or loan payments? |
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| Are maintenance costs included in the lease or loan? | ||
| What are the maintenance costs associated with the item? | ||
| What are the insurance costs included in the lease or loan, if any? | ||
| What are the estimated insurance costs associated with the item? | ||
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If business is seasonal, does the lease or the loan fit periods of sufficient cash flow better? |
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| Tax Benefits | Lease | Purchase |
| Can the item be depreciated for tax purposes in a lease or loan? | ||
| What is the depreciable life of the item? | ||
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What is the estimated depreciable expense of the item over its depreciable life? |
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| What is the amount of other tax benefits associated with this item? | ||
| Obsolescence | Lease | Purchase |
| What is the operable lifetime of the item? | ||
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What is the total cost of the item spread over this lifetime (divide cost by lifetime)? |
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| What is the technological lifetime of the item? | ||
| Will the item need to be replaced due to technological advancement? |