Buy or lease?

Whether to buy or lease office equipment  depends on several factors. Of course, it costs more to lease in the end, but the tax advantages can really take the sting off the interest in many cases. Here’s the factors involved: cash on hand, how many deductions your business is going to have for the year, and something most people don’t consider, security. You can sell a printer or a copy machine without too much worry, but if a computer has sensitive data, or a merchant terminal is keyed to your account, selling them to a stranger on EBay could be a disaster.

If you can afford it, or it’s a small purchase, always buy it outright. If you’re just starting up a business, or it’s a large purchase that’s going to put a strain on your finances, leasing can make more sense.  Also if it’s an item you’re going to want to upgrade in five years, or one you don’t feel comfortable selling for security reasons, it’s an option to consider.

Let’s talk numbers, if for example a terminal or cash register is going to cost $2,000  cash, and a lease of $90 a month for five years would $5,400, the tax break would be as follows. The following year,  assuming a 35% tax bracket, would be an initial $2,100 and depreciation being 20% a year would be $378 per year less you pay in taxes. Usually long life equipment can take 5-7 years to depreciate, but when it’s leased you can depreciate it over whatever term the lease is.

The numbers are: $1,890 in savings first year, and another $1890 over five years in depreciation for a total of $3780.  The final total is $1,620 for five years of use of a $2,000 device you probably wouldn’t want to resell on the open market with your security certificate and account information embedded in it. If you sell them without the SIM card, it’s going to typically cost the new owner about $500 to have their processor reprogram it. This is why it’s such a bad idea to buy a terminal that’s not programmed already for your merchant account. When you turn these back into a leasing company, they know how to wipe your information and reprogram it.

Overall, if you have to buy a lot of terminals to buy and want to keep it as an expense (off the balance sheet) or you want to accelerate the depreciation down to the life of the lease, it’s usually a cheaper way to keep the interest payments in line over other ways of funding. Cheaper than a credit card, but more expensive than a typical bank loan.

One word on warranties, the manufacturers of these devices always throw in a 12 month warranty on defects, but there’s only one I know of that includes lifetime warranties on all the terminals they sell or lease. Give my friends at MST a call at 800-715-8053 or drop them an email here here. They are  an executive underwriter, so they write accounts directly with the major banks (unlike middleman agents who have higher rates, because the company between them and the bank tack their residuals onto your rates). The last gentleman who called him was doing $215,000 a month in volume and MST was able to permanently reduce his merchant fees by $2,600 a month over the major processor he was using. Yeah, I don’t mind recommending them