When it comes to acquiring equipment for your business, the decision to buy or lease can have lasting financial and operational implications. Whether you're in food service, construction, healthcare, or manufacturing, understanding your options is key to making a smart decision. Here are five essential factors to consider:

1. How much can you afford?

The biggest consideration may be obvious—money and your business's cash flow. Business equipment isn't cheap. So, to make sure you choose an option you can afford, you'll need to think through the overall costs of each option.

Buying equipment typically requires a significant upfront investment in the form of a down payment. While you gain full ownership, the initial cost can strain your cash flow—especially for newer or growing businesses. However, ownership may be more cost-effective over the long term if the equipment has a long useful life.

Leasing offers lower monthly payments and often requires little to no down payment. This can help preserve working capital and improve cash flow. Leasing also typically includes maintenance and support, reducing unexpected expenses.

At National Bank of Arizona, we offer  financing for equipment purchases and leases, with flexible terms designed to fit your budget. Explore your options.

Check out our equipment buying or leasing calculator to get a handle on all the numbers and figure out which option may be best for you.

2. What types of leases are available?

You'll also need to look outside the numbers before making a decision. Understanding the different lease structures is crucial.

Capital Lease: Functions like a loan. You record the equipment as an asset and assume ownership at the end of the lease, often through a nominal buyout (e.g., $1). This option allows you to claim depreciation and interest expenses for tax purposes.

Operating Lease: Functions like a rental. You don’t own the equipment, and it’s not recorded on your balance sheet. Payments are treated as operating expenses, which may be fully deductible.

Your lease may also come with a buyout option at the end of the term, and depending on the lease, you may have a few options:

Fair Market Value (FMV) Buyout: You purchase the equipment at its market value at lease end.

Fixed Purchase Option: You agree up front to buy the equipment at a set price.

$1 Buyout: Common in capital leases, this allows you to acquire the equipment for a nominal fee. The catch with this option is that it usually costs more throughout the lease term than the FMV option, so you may not be saving money in the end.

3. What kind of tax breaks do you expect?

The current tax law, called IRS Section 179, gives different tax breaks for business equipment depending on whether you buy or lease it. When you purchase equipment, your business can deduct the entire cost of new equipment for the current tax year. 

With equipment leasing, tax advantages are lower. But it also depends on the kind of lease you have. With a capital lease, you can claim depreciation on your taxes to lower your taxable income. If you have an operating lease, the cost of the lease is counted as a business expense rather than an asset. Thus, you can only deduct your monthly payments, but not the cost of depreciation, on your taxes.

4. How long will you need the equipment?

If you plan to use the equipment for many years and do not have to worry about the equipment needing upgrades or becoming outdated, buying may be more economical. You'll build equity and can resell the equipment later.

If your needs are short-term or subject to change, leasing offers flexibility. You can upgrade or return the equipment at the end of the lease, avoiding obsolescence and storage costs.

5. How much control do you want?

Ownership gives you full control over the equipment. You can customize it, use it without restrictions, and decide when to sell or upgrade.

Leasing may come with usage limits or restrictions, depending on the lease terms. However, it also reduces the burden of maintenance and disposal.

If control and customization are important to your operations, buying may be the better route. If flexibility and simplicity are priorities, leasing could be ideal.

Let's find the right fit for your business

The decision of whether to buy or lease equipment comes down to several important factors. Whichever you choose,  we can help your business get the equipment it needs to grow and thrive. 

Schedule an appointment with one of our business bankers to get started today.