Rent vs. Buy: Which Makes More Sense?

Rent vs. Buy: Which Makes More Sense?

There are advantages and disadvantages both ways.

Businesses big and small pose this question. Big equipment like industrial pumps: should you buy it or rent it? The question keeps getting asked because there’s no right answer. As frustrating as it is, rent vs. buy depends on the variables of your business.

But let’s see how far we can turn this vague answer into something more usable. We’ll take an approach showing the general pros and cons of both.

Renting/Leasing Advantages

Renting or leasing business equipment and tools is a boon for cash flow. You preserve capital and give your business more flexibility to take advantage of future opportunities. But this option may cost you more over the long run. Keep that in mind while we dive deeper into the advantages.

Less startup expense. Any accountant will tell you that the primary advantage of renting or leasing equipment for your business is that you get what you need to get the job done. In the case of leasing, there’s seldom even a down payment required. You can get the equipment you require without putting a huge dent in your cash flow.

Tax deductible. Lease payments are usually deductible as a business expense. This reduces the net lease cost. The IRS allows you to deduct any expense that is ordinary and necessary to operate your business. The rental expense must relate to the type of business you operate and you can claim a deduction for the entire cost.

Flexibility. Leases are usually easier to obtain, especially if it’s a large capital expense. This means you’ll find more flexible terms. That’s helpful if you have poor credit or need an extended payment plan to conserve cash flow. If you rent, you’ll only pay for the time you need the equipment.

Keeping things current. Another big advantage to renting or leasing is that you skip the problem of aging equipment. Use a lease program to obtain business equipment that will be quickly outdated. You can exchange it for new models when the lease expires. Few of us want to rent things that are old and behind the times and equipment rental companies know this, offering the latest models.

Renting/Leasing Disadvantages

Higher overall cost. Leasing is almost always more expensive than buying business equipment. You pay more for the privilege of conserving your cash flow. The same goes for renting. The rate over time will add up to more than an outright purchase.

You don’t own what you use. Equipment such as large industrial pumps builds equity over time, especially if the equipment is well maintained. You benefit from earned equity in the equipment you rent or lease.

Buying Advantages

Ownership. When you buy business equipment, you gain ownership of it. That might not be such a good idea for things that quickly become outdated, such as computers. Business equipment with long lifespans are assets that grow the value of your company.

Tax incentives. Section 179 of the Internal Revenue Code lets you deduct the cost of purchased assets. Be sure to consult your tax advisor to make sure the code applies to you.

Possible depreciation tax incentives. Not all equipment purchases are eligible for deductions under IRS Section 179, but there are still ways to get tax savings. Almost all business equipment is eligible for tax deductions through depreciation. You can’t take advantage of these tax incentives if you lease or rent.

Buying Disadvantages

Higher upfront expense. Buying large pieces of equipment like industrial pumps might not be an option for you. The initial cash outlay could be too much. And if you plan to finance the purchase, you may be required to make a down payment of 20 percent or more. Your lines of credit will be tied up, and your lender may place restrictions on future purchases to ensure your ability to repay the loan.

You’re generally stuck with what you buy. Ownership is an outright advantage. There is a downside, though. What you own may become obsolete. This probably won’t be the case with industrial pumps. But it’s definitely the case with technology-related business equipment.

So … buy or rent/lease?

Look at the value of the asset. Factor in tax breaks. Is there a reasonable resale value? If you’re leaning toward buying, make sure the manufacturer stands behind the product with a strong warranty. It helps if the equipment has a reputation for being easy to maintain and repair.

MWI falls into the last two categories. We build commercial-quality, heavy-duty pumps for every job. They’re long lasting and highly efficient. Our axial and mixed flow water pumps are covered by patented technology and they’ve received recognition for longevity and service throughout the world.

All MWI Corp pump components are picked for ruggedness and durability. We have pumps installed and hard at work in over 50 countries, put to daily use in multiple applications. Find out more about us here.

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