Equipment need : Buying versus Renting

When you are in need of equipment for your company or a project it is not difficult to get offers from different dealers or manufacturers. They all have the best product , the cheapest or with the best productivity. But when it comes to acquiring such piece of equipment many do not know the (financial) consequences of it. We explain the difference between buying new, buying used, leasing and renting.

Financial consequences

We are not touching the subject “maintenance” nor “cost of ownership”. We just briefly touch on the pros and cons of buying versus renting. It does have consequences for your business.

Buying new

When buying new equipment , for sure, you have the full attention of your local dealer or manufacturer. These companies prefer to sell new equipment. New equipment is expensive but has indeed a couple of advantages of buying.

  • Dealer / manufacturer support
  • Parts availability guaranteed
  • Can be customized to your needs with factory fitted options
  • Warranty (sometimes up to 5 years)
  • Image to your clients (looks new and good)
  • Pieces of mind (assuming new equipment has less downtime)
  • State of the art product latest (emission) innovations

Disadvantages of buying:

  • Expensive and sometimes difficult to raise funds
  • Delivery time (large equipment is generally not produced for stock)
  • Capital expenditure puts a strain on your cash flow and working capital

Leasing new

As an alternative to buying new and to overcome the disadvantages you could lease your equipment. There are two sorts of leasing , “operational lease” and “financial lease”.
Operational lease is using the equipment shorter than its economic life. After the lease period it still can be used and the possibility exists to take ownership for a certain amount (residual value).
Financial lease is just financing the equipment over a period of time as long as its economic life. After the financial lease period the lessee becomes owner of the equipment.

Advantages of leasing:

  • You have new equipment at your disposal
  • No residual value risks
  • Working capital is not affected and can be used for other important business
  • You can depreciate the equipment and lower your net business result (fin. lease)
  • Clarity in your cost structure, no surprises, “off-balance” (oper. Lease)

Disadvantages of leasing:

  • Delivery time can still be an issue
  • High expenses when terminating the lease contract premature
  • In the end , borrowing money costs money

We have not discussed Leasing used equipment. This is under certain conditions possible.

Buying used

For those who do not have the capital strength to buy new and cannot get a leasing or simply do not want a new machine for any other reason, there is the possibility to buy a used piece of equipment. Of course it comes with advantages and disadvantages.

Advantages:

  • Cheaper to purchase, no financial restraints from the bank or lease firm
  • Available immediately

Disadvantages:

  • No warranty in most cases
  • Age, hours, looks , it remains a used machine with less image on the jobsite

Make sure you know your equipment before buying used. Independent inspectors can help you.