Should You Buy, Lease or Rent your Business Technology Equipment?

The time has come to upgrade your computers. Perhaps your phones just aren’t what they used to be. Maybe that loud noise coming from the IT closet is your server rack telling you it’s time for an upgrade. Technology is always changing and improving. It can be tough to stay on top of the technological needs for your business.

Whether you are starting a new business or simply upgrading your equipment, there are many options to consider, not only for the equipment itself but also how you pay for it. This article aims to break down the advantages and disadvantages of renting, leasing and buying equipment to help you decide what is best for your business.

Buying:

Buying technology equipment for your business can be a substantial investment at first, but may be well worth it in the long run. It can be an overall cheaper option than renting or leasing but it will impact your cashflow and you will spend money that can be used for other things. If you want to own your business technology, you have to buy it. Your technology becomes an asset of the company and therefore makes the company more valuable. That said, technological equipment does depreciate over time, meaning your investment is lessening with use and with time. When you buy equipment, you are responsible for all maintenance and upgrades.

Buying would be taxed as a depreciating asset. Because you are buying the equipment outright, you would pay no interest and would be paying less than any lease or rent offer on the same devices.

Leasing:

If you know you will need new computers, phones or servers but you don’t have the cash to make an outright purchase, leasing is the option to consider. Or if your business is just starting or expanding rapidly, it may be more beneficial to not drain your financial resources on big equipment expenses. With leasing, you have predictable monthly payments, and because you can often select your lease term, you can custom tailor your payments to your company’s budget. With a lease, you can change up your equipment at the end of the lease term, allowing you to always have the latest gadgets, but on the other hand, if your equipment gets broken before the end of the lease term, and you don’t have a warranty, you might end up paying for both the broken equipment and its replacement. And if you have a warranty, find out how long the manufacturer would take to send you a replacement unit and estimate the impact of that delay on your business.

Leasing is also taxed as an expense and not as an asset; that is, until or unless you buy out the lease, in which case it may already be a depreciated asset. In the long term, you will pay more leasing than buying, plus you need to pay each year for an extended warranty, which costs on average 15–20% of the original price. This is because your lease is considered a loan which is subject to interest. Depending on the initial purchase cost, extended warranty and lease term and rate, you could end up paying almost twice as much by leasing instead of buying. However, if you are a small-to-medium sized business with a good credit record, leasing may be the way to go!

Renting:

In many ways, renting offers the best of both worlds with regard to buying vs. leasing. Renting technology equipment for your business is becoming more and more common in this day and age. If you don’t want to commit to a certain technology for an extended period of time, a rental contract may be more suitable. Technology is always improving— quickly. Renting also allows you to have predictable monthly payments that can be easily worked into your budget without having to worry about maintenance costs or other fees. And most importantly, when you rent, if something happens to the equipment, you get a replacement without delays or extra costs. With leasing or buying, even if you have a warranty, there will be additional costs to replace defective equipment.

In the long term, you will pay more for renting compared to leasing or buying. Renting is taxed as an operating expense and not as an asset that will depreciate over time. Depending on the size of your company, this can be a huge consideration. If you are a smaller business or start-up and not sure of your needs, renting would be a great option for you!

Buy Lease Rent
Investment High Low Low
Warranty Extra Extra Included
Replacement 4-8 Weeks 4-8 Weeks Immediate
Maintenance Extra Extra Included
Ownership Immediate End of term
Tax Implication *CAPEX **OPEX **OPEX