# Should I lease or buy equipment?



## Wnorton3467 (Mar 6, 2017)

Hi everyone,
I am new to this business and would like some input on equipment. I am looking at Tajima and Barudan embroidery machines and would like to know the pro's and con's on leasing vs buying the machines. I can see advantages to both but I can also see disadvantages. Anyone with experience in both?


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## sinGN (Oct 12, 2016)

I think it's better to buy new machine.if you have sufficient fund then by new one. 

because: 1.You usually pay higher costs over time than you would if you paid up-front. Most leasing options require interest to be paid as well.
2.The available length of lease terms may be longer than you need
3.Availability of products may be limited depending on the stock of the leasing company


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## SunEmbroidery (Oct 18, 2007)

If you lease you'll probably pay a lot more for the machine. Review leasing options from different companies. Some companies sell leases to other companies so check to see if thats a possibility. If so make sure you don't end up paying for an additional month. Keep careful copies of all paperwork. If you can get a bank loan thats usually a cheaper option.


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## splathead (Dec 4, 2005)

Leasing terms are on par with using an 18% interest credit card. At least with a credit card there isn't a lump sum buyout at the end of the term like there is with leasing.


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## PatWibble (Mar 7, 2014)

The only advantages of leasing are that it makes whatever capital you have go further, but at a massive cost, and/or it saves you using or re-investing your own money. Your accountant will tell you that the costs are written of against taxation, so the equipment isn't really costing you, but in my experience it never feels like that when you are paying.

You have some decisions to make - do you want to invest your own savings, or do you want to use someone elses?

A bank loan could be cheaper, but only an accountant would be able to tell you if that is a tax efficient way of buying. 
Your own circumstances will have something to do with the decision of loan vs. lease. What is the loan secured against, and what happens if the business doesn't succeed? Chances are the 'fire sale' value of your nearly new machine won't be enough to clear a loan, and the balance could end up being attached to your home.


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## houjianisharon (Apr 20, 2015)

Wnorton3467 said:


> Hi everyone,
> I am new to this business and would like some input on equipment. I am looking at Tajima and Barudan embroidery machines and would like to know the pro's and con's on leasing vs buying the machines. I can see advantages to both but I can also see disadvantages. Anyone with experience in both?


Buying the machines is better in the long run.
But if you are not sure your products will be popular among the customers or not, you can lease first. After you have stable source, buy the machine. 
Hope my answer can help you.


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## Chris109 (Aug 3, 2015)

I ordered a 4-head Barudan in 2007 for $36k. I gave Barudan $6k down so I wouldn't need to make payments for a few months. When it came time to 'purchase' the machine, I was referred to a leasing company. The only way I could get the lease from that leasing company, I had to lease the full amount of $36k. I didn't understand this but I needed to do something cause I waited til the last minute. Needless to say, 10 years later, I still owe $5k for this machine (I had refinanced bank loans for a couple of times due to economy downturns) because from the very start, the rep from the leasing company outright LIED to me about paying off the machine early.

Take this for what it's worth.


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## image builder (Mar 14, 2011)

Most leases with lease companies do not have an early payoff option so if things get going good and you want to pay it off early it will cost you the same. Learned the hard way!! They will tell you you can but it is the same amount if you run the lease out. Try your local bank first.


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## firesprint (Mar 8, 2017)

Whatever you do, be sure to ask these questions: 

- Are there penalties for an early payoff?
- Who is responsible for the property tax?
- What is the actual interest rate, and how much will the loan/lease cost overall (Run these numbers yourself based on all the fees. It will be higher than they tell you)
- What are the repayment terms - how many months at what rate?
- How much money down?
- What will the buyout be at the end of my lease? $1? $10,000? 10%? FMV (Fair Market Value)?
- Generally, whether you lease or take a loan out, you will be able to depreciate the equipment the same on your taxes, but check with your accountant on this as well.

When we bought our new Zund cutter last year, we explored leasing and financing through our bank and we decided that a bank loan was better, but it did require us to put more money down.

Also, don't forget to negotiate. Don't let your bank or leasing company feel like they are doing you a favor by loaning you the money. We have negotiated on all of our major purchases and gotten our bank to drop a percent or more on the interest rate!


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## ssmedia7 (Sep 26, 2013)

I know of 5 print shops that went out of business over the last 5 years. They all had leases and when business got slow they couldn't keep up with the payments. I'm not saying don't get the equipment but i'm saying separate the transactions. I used a bank to get the money and then purchased the equipment. This way IF business got slow then no one was coming to get my equipment. If things went bad then it's bad credit on the company. Since then, I've paid off two loans and a line of credit. Everything is well. If you pay off a lease they will give you a new one. If you pay off a line of credit/bank loan they will give you more and more each time. 


Sent from my iPhone using Tapatalk


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## PatWibble (Mar 7, 2014)

I wouldn't recommend leasing for a start-up. You have no way of knowing what your revenue will be like. If things are slower than forecast, then you could end up using the money you had available to buy equipment to pay the leasing fee each month! That would hurt...
At least if you own it you don't have the pressure of a monthly fee. 

Leasing is only really suitable for shorter term transactions, of high tech goods that need to be updated regularly, or vehicles that have wear and tear and high depreciation. Anything over 3 years then go to your bank.

With leasing you are effectively renting the equipment, and then, after you have used and abused it for years, you have the option to buy it at second hand value. You could be better of buying second hand from the outset, and putting your lease payments aside to buy new in a few years time...

It is worth mentioning that lease costs generally appear in the profit and loss accounts as a 'fixed cost', which reduce the net profit and tax liability accordingly. Depending on the tax rate, that will partially offset the leasing costs.
For any of that to be a 'pro' for leasing, the business needs to be an established and profitable business. For a start-up, there is not necessarily going to be much or any profit in the first year against which to offset the leasing cost.


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## firesprint (Mar 8, 2017)

Keep in mind that leasing a car is a bit different than leasing commercial equipment. There's pretty well-established values on a vehicle, so the finance companies can figure the residual (What value will be left after the lease), but with equipment that's another story. Generally a leasing company does not want to own the commercial equipment at the end of the lease and the terms will dictate that. In my experience, a lease and a loan are not all that different. Similar terms and a similar end game, just different costs and structures.

Your best bet is likely to go to your bank, but not because it's a loan vs a lease, because they will likely be more competitive in the rate and repayment terms. Don't get stuck in the terminology, look at all your options and answer all your questions and then decide.


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## PatWibble (Mar 7, 2014)

What are the US accountancy conventions regarding loan or lease payments? 
In the UK, only loan _interest_ can be counted as an expense on the Profit and Loss account. Lease repayments are counted as an expense in their entirety. If the tax rate outstrips the the premium payable on the lease, then leasing begins to make sense.

With a lease, if you are buying 30k of equipment and paying back 36k over 3 years, and your tax rate is 20%, then the taxman is paying 7.2k ( 20% of 36k expense) and you are only paying 28.8k back.

Using the same figures for a loan, the tax man is paying back 1.2k (20% of 6k expense) and you are paying back 34.8k.


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## lorerodri (Aug 5, 2014)

sinGN said:


> I think it's better to buy new machine.if you have sufficient fund then by new one.
> 
> because: 1.You usually pay higher costs over time than you would if you paid up-front. Most leasing options require interest to be paid as well.
> 2.The available length of lease terms may be longer than you need
> 3.Availability of products may be limited depending on the stock of the leasing company


Your are right, if he has sufficient fund i think it is healthy not to involve with financing.


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## binki (Jul 16, 2006)

We purchased our first equipment with our own money. After we were established and making money we went to our local bank and got a loan to expand. The loan terms came out to a little less than 6%. Lease terms are not as friendly but consider this. If your lease is $1000/mo and you are making $30K/mo with the equipment then it may be worth it.


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## lesz (Mar 24, 2017)

If you can afford it buy it. True philosophy for buying most anything, even a home. But if you are like the most of us leasing gives you the option to get what you want if paying cash would leave you a little crippled.

Les


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## taknchances (Oct 3, 2013)

Could I ask what you ever did with paying for or going thru a leasing company? I am in the same situation however I dont want to use all my cash and thought if could lease for longest possible time and payoff soon as possible since I would never go 60 months, payments would be much less. I also know I can pay off and still have cash in reserve.

Thanks for your help.


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## Logarius (Jun 9, 2021)

No business is complete without credit.


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## Sidiusss (Apr 13, 2021)

It is better to buy equipment gradually if you are confident that your business will flourish gradually. I arrange a business loan whenever there is a need for finance, although I can invest all the money in the purchase of one piece of equipment. I recently opened a beauty salon for dogs, but I had to do the renovations at my own expense. The owner opposed, as the premises belong to his property. I promised that I would do better than I was, but he took a receipt that I would not spoil anything. Therefore, now I only want a loan for a business, so that I always have free money in my pocket. If the premises are taken away, I can immediately take the equipment to another office, but continue to pay the deposit. This gives me time to find a new office for clients.


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