One question that still lingers in the business corridors is whether a company should buy or lease capital assets. The answer is subject to different circumstances. Leasing asset might be a good choice for companies with inadequate capital or those which require assets that ought to be upgraded annually, while buying asset may be a better alternative for recognized firms or for capital assets which have a long serviceable life (Bernstein, 2016). However, each company is unique, and the choice to buy or lease capital assets should be is determined by different situations.
Leasing capital assets reserves capital and offers flexibility, although it can cost a business more in the long-term. Leasing has a range of benefits such as lower initial cost, tax deductibility, flexible terms, and easier upgrading of assets. However, leasing also has its drawbacks, which include higher overall cost, lack of possession of the assets leased, and an obligation to pay for the whole lease term. Also, as stated by Louis (2013), leases make landlords more vulnerable to increases in costs of borrowing as the long-term leases of their buildings, which might range between three and fifteen years, limit opportunities for increasing rents. However, income grows faster for other property types owners which generally have shorter leasing periods as well as higher tenant turnover.
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On the other hand, tax breaks and ownership makes buying capital assets attractive, although high initial costs make this option undesirable. The most of obvious benefit of buying capital assets is gaining ownership of the asset. Besides, there are the benefits of tax incentives, and potential for depreciation deduction. However the downsides of buying assets comprise higher initial cost, and getting stuck with obsolete assets (Bernstein, 2016). Overall, leasing offers an option of immediately owning the asset without using a lot of money, while buying allows a company to own the asset.
References
Bernstein, A. (2016). Rent, lease or buy? How to finance your new equipment. Nursing And Residential Care, 18(8), 440-442.
Louis, B. (2013). Obamacare Packing Medical Offices Spurs Deal Surge . Retrieved from https://www.bloomberg.com/news/articles/2014-01-14/obamacare-packing-medical- offices-spurs-deal-surge
