Equipment Purchase and Lease Agreements
Whether your California business should lease or buy equipment depends on your particular circumstances. If you have limited capital and need to upgrade your equipment every few years, you should lease. But if you need equipment that has a long life and you are an established business, buying equipment may be a better choice. Experienced Pleasanton business transaction attorney James G. Schwartz can offer advice and draft equipment purchase and lease agreements for your business or review agreements drafted by the other party's lawyer.Advantages and Disadvantages of Leasing Equipment
If you are a new business, leasing equipment has a number of advantages. It allows you to acquire the equipment you need to run your business without making a significant initial expenditure. Equipment leases rarely require a down payment, so you need not seriously impact your cash flow in order to obtain the goods you need. Lease payments can usually be deducted as business expenses, and they usually have flexible terms, which helps for those struggling business owners who have poor credit or are just starting out.
If your business is just starting to grow, it is easier to upgrade your equipment by leasing it. This allows you to pass the risk of the equipment becoming outdated to someone else. Most high-tech equipment like computers and printers, for example, quickly become obsolescent. Once your lease expires, you can lease new, cutting edge equipment and you don't need to worry about how to get rid of it.
On the other hand, leasing equipment can be more expensive than buying it outright. You don't build equity in the equipment, and you are obligated to keep making payments through the lease period even if the equipment is no longer useful to you in your business. There may be hefty early termination fees if you try to cancel the lease, regardless of the reason.
Purchasing equipment has advantages and disadvantages. There are certain tax incentives for buying equipment. Section 179 of the Internal Revenue Code permits you to deduct the cost of newly purchased assets in the first year, depending on your tax bracket and the type and cost of the equipment. However, you cannot take a Section 179 deduction for real estate and certain other items. You may be able to take depreciation deductions for equipment you own. For equipment that is unlikely to become obsolete within a few years, purchasing the equipment outright might make sense, particularly for businesses that already have significant cash or assets.
For some people, it is simply too expensive to buy business equipment. Usually a sizeable down payment is required even if you purchase the equipment on a payment plan. Borrowing money to purchase equipment can impact your lines of credit or affect your future ability to borrow money for other purposes. Moreover, you run the risk that the equipment will become obsolete and you will have spend money again, sooner than you anticipate, to buy equipment that better suits your objectives. The resale value of equipment can drop dramatically in a short period of time.Experienced Alameda County Corporate Lawyer
Whether you are just starting your business or pushing forward with an existing corporation, Mr. Schwartz has 30 years of experience offering legal advice to businesses. He can help you decide whether buying or leasing equipment will better serve your business interests. Moreover, he can draft or review agreements to lease or buy to make sure your objectives are met. Contact experienced Pleasanton corporate law attorney James G. Schwartz at 925-463-1073 or via our contact form. We serve Alameda County and East Bay businesses, including those in Fremont, San Ramon, Hayward, and Dublin.