Buy vs. Lease Equipment Calculator

Whether you’re assessing costs, tax implications, or potential returns on investment (ROI), our leasing equipment calculator is designed to simplify complex considerations and enable more informed decisions tailored to your business’s unique needs and goals. Simply input the following information to get detailed results:

• Equipment Information
  • Purchase price: The cost of the equipment if purchased outright. 
  • Sales tax rate: The percentage of sales tax applicable to the equipment purchase. 
  • Estimated useful life of equipment (years): How long the equipment is expected to be functional and useful for the business. 
  • MACRS depreciation years: Years determined by the modified accelerated cost recovery system (MACRS) for tax depreciation purposes. 
  • Average annual maintenance costs: Maintenance costs are the early expenses to maintain the equipment in working condition.
  • Month you plan to buy or lease equipment: When you intend to make the purchase or lease. 
  • Fair market value at end of lease: The estimated value of the equipment once the lease term ends.
  • Fair market value at end of useful life: The predicted value of the equipment at the end of its useful life, not necessarily the end of the lease.
• Buy Option
  • Down payment: The initial payment made during the equipment purchase. 
  • Loan term (months): Duration of the loan to finance the equipment.
  • Interest rate: The rate charged on the borrowed amount is expressed as a percentage.
• Lease Option
  • Security deposit: The initial deposit to secure the lease.
  • Deposit refundable at end of lease: The amount of the initial deposit that’s returned when the lease ends. 
  • Lease term (months): Duration of the lease agreement. 
  • Lease payment: The amount paid at regular intervals (usually monthly) for leasing the equipment. 
  • Frequency of lease payments: How often lease payments are made. 
  • Other lease fees: Additional costs associated with the lease. 
  • Are you responsible for the maintenance of leased equipment: Determines who covers maintenance expenses. 
  • Option to buy equipment at end of lease: Whether there’s an option to purchase the equipment once your lease ends. 
• Company Information
  • Federal tax rate: The percentage your company is taxed at the federal level. 
  • State tax rate: The percentage the state taxes your company. 
  • Savings interest rate: The interest rate on the company’s saved or invested funds.
• Results
  • Details: The results will provide you with a detailed lease vs. buy equipment analysis by comparing the total costs of each option based on the provided data.

Leasing allows businesses to pay to use the equipment over a specified period without owning it. This option has its own benefits and drawbacks that can have financial and operational implications on your business. The pros of leasing equipment for business include the following: 

• Lower upfront costs: Leasing requires minimal upfront costs. Besides the security deposit, companies won’t need to have significant capital to fund their equipment.
• Predictable monthly payments: With leasing, businesses can anticipate their monthly expenditures on equipment with greater accuracy. Fixed monthly lease payments provide stability and make building a better budget straightforward. 
• Potential tax benefits: Depending on the jurisdiction and circumstances, lease payments are often deducted from taxes as a business expense, which can lead to potential savings.
• Ability to upgrade to new equipment more frequently: Technology and machinery constantly evolve. Leasing offers businesses the flexibility to keep pace with advancements. At the end of the lease term, companies can upgrade to the latest equipment to ensure they remain competitive.

Unfortunately, leasing comes with its own set of challenges and limitations. The potential cons of leasing business equipment include the following: 

• Potential higher overall costs: Leasing is cost-effective in the short term, but over extended periods, the lease payments can add up and potentially exceed the cost of purchasing the equipment outright. 
• Inability to build equity: Unlike purchasing, leasing doesn’t allow businesses to build equity. At the end of the lease term, there’s no asset to sell or leverage.
• Usage restrictions: Lease agreements may limit the hours of operation or maintenance requirements, which can affect operational flexibility.
• Credit checks: Leasing companies typically conduct credit checks before approving a lease. Those with less-than-ideal credit might face challenges securing a lease or end up with less favorable terms.

Buying equipment outright is another strategic option because it provides immediate ownership, control and potential long-term financial benefits. However, with ownership comes responsibilities and potential drawbacks.

The pros of buying business equipment include the following: 

• Ownership: When you purchase equipment outright, you own it, giving you full control over it and its use. 
• Potential long-term cost savings: While the initial investment is substantial, owning equipment typically translates to long-term cost savings. 
• No usage restrictions: Owned equipment doesn’t limit businesses with constraints on the use of the equipment, giving them the freedom for more flexible operations.
• Ability to build equity in the equipment: As an asset, equipment can add value to your business’s balance sheet. Over time, even as the equipment depreciates, it remains an asset that can be sold, traded, or leveraged when needed.

That said, like leasing, purchasing business equipment comes with its own set of drawbacks, including: 

• Higher initial costs: The upfront investment required to purchase equipment can be significant, potentially straining a company or tying up capital. 
• Depreciation: Owned equipment loses value over time, which can impact a company’s financial statements. Additionally, the equipment might not fetch a high resale value in the future. 
• Maintenance costs: Ownership requires you to pay for maintenance, repairs and upgrades out of pocket as the equipment ages.
• Obsolescence: In industries where technological advancements occur rapidly, purchased equipment can become outdated, posing challenges when competitors adopt new, more efficient technologies.

There are two primary ways businesses can lease equipment: capital and operating leases. 

Capital leases function similarly to a loan. In a capital lease, the lessee finances the purchase of the asset, even though it is legally owned by the lessor. The lessee covers a significant portion, if not all, of the equipment’s useful life. The equipment is usually recorded on the lessee’s balance sheet since it’s treated as being “owned.” As the lessee, your business can claim depreciation on the asset for tax purposes. 

On the other hand, operating leases are more like traditional rental agreements. In an operating lease, there’s no transfer of ownership. Therefore, the equipment doesn’t appear on your balance sheet, which can improve certain financial ratios. However, you also can’t claim depreciation for tax purposes. Instead, the lease payments can be deducted to reduce your tax liability. 

With operating leases, terms are usually shorter and don’t cover the full lifespan of the equipment.