To buy or to lease?

Implementing a recycling program alongside your current business operations is a great way to increase profit margins from waste you’re already generating. All types of businesses, including grocers, retailers, manufacturers, and agricultural operations, can transform their waste stream into a business asset with the right sorting and processing equipment.

As with any other business venture, minding your budget is paramount. Fortunately, there are many financing options, such as buying or leasing, available to businesses looking to upgrade or install their own recycling equipment.

The pros and cons of leasing vs buying

Leasing

The ideal candidate for leasing equipment is a business, perhaps one just getting started, whose financial capital is limited and who may need to upgrade equipment on a regular basis. However, there are pros and cons that must be considered.

Leasing equipment has many advantages, including:

  • Lower upfront costs as leasing agreements rarely require a down payment. Businesses are able to get the equipment they need now without severely tightening their budgetary belts.
  • Businesses may be able to claim certain leased equipment on their tax returns, reducing the net cost of the lease.
  • Leasing agreements generally offer more flexible payment options for businesses who need to extend the life of the lease or whose credit is less than ideal.
  • Obsolescence can be costly if you need to upgrade equipment regularly. Leasing is ideal for operations using high tech machinery with rapidly depreciating values.

The drawbacks of leasing should also be considered:

  • In the long-run, leasing is generally always more expensive than buying equipment outright, because the sum of the monthly payments will probably be higher than the actual value of the equipment.
  • When leasing equipment, you forgo the ability to generate equity, which is a major drawback if the machinery retains its value for a long span of time.
  • Unless you want to pay expensive cancellation fees, you’re obligated to make payments over the entire life of the lease, even if you stop using the equipment.

Buying

Though not every business may be able to raise the substantial upfront costs to purchase their own equipment, companies with significant capital may want to invest in long-lived machinery to build equity and benefit from certain tax breaks.

The pros of buying equipment:

  • You’ll own the equipment, meaning you can benefit from the added value, or equity, of long-lived equipment as you pay off the loan- if you had to take a loan out in the first place.
  • You may have the option to receive tax breaks through depreciation deductions according to Section 179 of the Internal Revenue Code.

Now for the cons:

  • Unlike leasing, the upfront cost is generally higher, even if you take out a loan, as most banks require a 20 percent down payment.
  • Obsolescence becomes a major drawback when purchasing Unless you are buying equipment that does not become quickly outdated, you risk diminished resale value.

Determining the right equipment financing options will depend on your industry and strategic agenda. The recycling industry has its own obstacles that businesses must contend with, such as an ever-evolving waste stream of lighter packaging and different materials, as well as stricter demands for premium quality recyclable commodities.

If you’d like to explore your equipment financing options, contact us! Berg Mill Supply provides a variety of creative ideas when it comes to equipment financing options that suit your budget and long-term goals.

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