# Lease or Buy?



## TshirtGuru (Jul 9, 2008)

For moderate expense business equipment ($25k-$35k), would you lease or buy and why?

I'm leaning towards, leasing to free up cash, lower monthly payments, at the end I can upgrade or downsize if needed, tax write off as monthly expense. Of course, it would suck to have to pay each month but not own the machine at the end of the term. But I'm thinking of seeing it solely as an operating expense instead of an investment in equipment.

What's your opinion?


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## stix (Feb 3, 2008)

I would take the cash and buy some good used equipment. I see so many people under the pressure of performing in this economy because they owe the bank. It can cause you some serious stress!!


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## ino (Jan 23, 2007)

In my opinion it depends on what sort of equipment you might need.
If its an equipment with a new or fast moving technology I would lease,as the resale value would become very low.
Equipment with a slow moving technological advancement I'd try to find a good second hand piece.


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## out da box (May 1, 2007)

I did the lease thing, it has advantages, but you have payments to keep up. 
I didn't have the cash for a new machine, probably not a used machine either. 
All in all, I would probably go lease for the cash flow advantages and tax writeoff.
Mine's is 42 months, it should go by pretty fast.


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## stix (Feb 3, 2008)

Most lease rates are out of this world because of the credit crunch in the USA. I would rather buy a good depreciated asset with cash and use this equipment to upgrade at a later time.


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## TshirtGuru (Jul 9, 2008)

It's specifically for an automatic screen print press and some soft costs (freight, training, installation).

Technology on presses improve quickly, but even some older presses perform just as well as the new ones. My worry is, buying used in cash and buying someone elses problem! Then I have a huge expensive paper weight.

Although I am selfish and want to OWN the equipment, I think i'm going to look at the expense as a monthly expense (instead of hiring an employee for $400 a week, $1600 a month), I can be paying $500 a month for automatic equipment which would be 10 times more productive then an employee on a manual press. This all depends also on the interest rate I suppose in which I will soon find out this week (I just checked my credit score, and it is considered "very high".

Is it true if you lease, it does not show on your credit history? That is what I read on Geneva's website.


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## TshirtGuru (Jul 9, 2008)

Ok an update, I got a quote from a leasing company:

If I lease $25k. Payments will be approx. $555/month for 5 years.

I will be paying $8300 in "interest" over the 5 years.

I figured my annual APR is 20%. 

Although I know my FICO score isn't everything that determines my rate (which is considered Very Good at 740 points). Showed bank references and such and had funds. My business is fairly new at 2 years and a few months old.

Now, I financed (not leased) a freakin $40k car at 5%. Is equipment leasing that much higher in APR? I never leased equipment before. Any insight would be helpful as I kind of feel screwed over.


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## Mr R (May 1, 2009)

Always pay cash I live by the dave ramsey method I wanted a roland printer and laminator plus other stuff and I saved and droped 50,000 cash the look on the faces of the sales people was worth every penny they tried to tell me to lease or finance I worked the deal and at the end just took out the cash and droped and said count it ill see you next week I walked out broke but I had my dream and within 8 months recouped about 3/4 back suffer a little now or suffer alot for 5 years.


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## TshirtGuru (Jul 9, 2008)

Mr R said:


> Always pay cash I live by the dave ramsey method I wanted a roland printer and laminator plus other stuff and I saved and droped 50,000 cash the look on the faces of the sales people was worth every penny they tried to tell me to lease or finance I worked the deal and at the end just took out the cash and droped and said count it ill see you next week I walked out broke but I had my dream and within 8 months recouped about 3/4 back suffer a little now or suffer alot for 5 years.


I figured with the tax write off benefits and 10% buyout option, it works well for our cash flow. I can drop the cash, I'm just scared to right now, plus I'd be broke like a joke when I walk out that door.

I just wonder if 20% is average? B/c every lease company I contacted for a preliminary quote is quoting an estimate of about 20%. Perhaps that is a good rate?


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## Mr R (May 1, 2009)

You might be broke but that makes you go out and recoup the money that much faster and if you have a bad month you dont have to sweat it why pay so much in intrest it wont be easy but Ill tell you when you look back your gonna be glad you did pay cash. I was so broke that I couldent buy a cup of coffie but I went out and sold my butt off and it worked out well but then again I always take alot of chances thats what business is a chance. A chance to be broke one day and have a nice payday the next day dont under estamate your self most people in business are at there best when there broke.


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## out da box (May 1, 2007)

You're gonna need more money after you buy the machine. A lot more. I wouldn't drain all of your cash. Plus if and when times get hard, or you get slow or something unexpected comes along, you're gonna be in a jam.
I do understand the not owing anybody anything concept, but you'd have to have a lot of cash to do it.
If you've got 30k cash right now there's no way you can't make those payments on time.
20% is about right for a lease- it's not the same as a loan. The machine will make the payment money plus a lot more. Think business cash flow. I leased my auto and leased a Roland, but I maybe should have bought the Roland outright.
Now if you have 60grand cash, then spending 30 upfront may not be a bad idea.


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## stix (Feb 3, 2008)

If you got cash buy good used equipment. Why buy new and pay full retail especially when your starting out. For 8-9k you can get a sp540 used, 2k on a laminator, 4k on a garment printer and you still have money left to buy vinyl, printheads, inks or whatever.. I personally believe the spring/summer is the wrong time to buy used equipment because people can use the equipment and make money.. so why give you a deal? However in the fall and winter when things are tight.. your cash is top dog!!!


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## TshirtGuru (Jul 9, 2008)

Do you have to insure the equipment you lease from a leasing company? Or do they insure the equipment? (I would ask my rep but it's the weekend).

Oh, and here is a link to a Lease VS Buy article which gives a general idea for pros and cons which might help someone in the future. http://www.entrepreneur.com/technology/managingtechnology/article80230.html


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## Mr R (May 1, 2009)

They do require insurance I think they include it in the payment but even if they dont you know the first time you dont have something will go wrong dont know why just the way of the world.


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## majesticmind (Sep 1, 2007)

TshirtGuru said:


> I figured with the tax write off benefits and 10% buyout option, it works well for our cash flow. I can drop the cash, I'm just scared to right now, plus I'd be broke like a joke when I walk out that door.
> 
> I just wonder if 20% is average? B/c every lease company I contacted for a preliminary quote is quoting an estimate of about 20%. Perhaps that is a good rate?


You get a tax write off regardless if you lease or not. Business equipment is business either way. At least in Canada.20% interest on anything is ridiculous. I dont know what credit in the states is like right now, but we just have a line of credit with our bank, at 4.25 % So we buy what we want and pay the bank back. Usually for medium sized purchasing we only use funds we already have saved. 

This months purchase was a swimming pool. Now I have to figure out how it applies to printing shirts for tax purposes.LOL


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## TshirtGuru (Jul 9, 2008)

majesticmind said:


> You get a tax write off regardless if you lease or not. Business equipment is business either way. At least in Canada.20% interest on anything is ridiculous. I dont know what credit in the states is like right now, but we just have a line of credit with our bank, at 4.25 % So we buy what we want and pay the bank back. Usually for medium sized purchasing we only use funds we already have saved.
> 
> This months purchase was a swimming pool. Now I have to figure out how it applies to printing shirts for tax purposes.LOL


Yeah you get tax write offs either way, but if you buy/traditional loan, you can only write off the interest you pay per month and depreciate the equipment every year for I believe 7 years. Traditional loans will usually ask for 10%-20% down payment on the equipment. Most bank loan interest rates are Prime Rate +1%. Although it may be great right now due to dropping interest rates, in the years ahead it may be bad as I don't have control of interest rates (which in turn means higher monthly payments). Which is almost what happened with adjustable rate house loans. Some are fixed rates.

With leasing, you can do 0% down payment, and write off the entire monthly payment as a working expense on taxes. Depending on your lease, most lease monthly payments are fixed rates and will never go up for the length of the lease.

I'm going to my bank branch this Monday and ask about a traditional loan on the equipment. I can probably get a better interest rate even if I have to pay a down payment.

(But I do believe 20% is standard rate for leasing. 20% is high, most all my credit cards are at 8.99% APR.)

EDIT: lol I am losing my mind, I think it's all of the numbers and calculations I've been going through lately. But I made a mistake on my APR, with my previous payments and etc, my APR would be 12% and not 20%. I apologize for the mistake.


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## Mr R (May 1, 2009)

hey bud just call it a shirt soaker or put it under entertainment for your clients.


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## Solmu (Aug 15, 2005)

TshirtGuru said:


> Although it may be great right now due to dropping interest rates, in the years ahead it may be bad as I don't have control of interest rates (which in turn means higher monthly payments).


Not much of a problem *if* you have the money to pay out the loan (which in a hypothetical "Buy outright now, or pay off over time?" you do), but are just choosing to use it elsewhere where you can make more money off it. Ultra low interest rates are a gift.


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