Planning for the Long Haul: Lease or Loan for Industrial Equipment

Running a machining or manufacturing business?  Then you know it doesn’t take long before you’re in a position where you either need to expand or replace your equipment and tooling.  Everything from wear and tear to increase in sales to shift in the market and marketable products will influence the direction you take with regard to your stable of industrial equipment.  With increased investment in domestic manufacturing, there are great tax and equipment financing incentives to step into new equipment that can give you the manufacturing edge over your competitors.

Investing in industrial equipment is a big decision, and determining how to finance industrial equipment is equally daunting, so let’s break it down a bit.

Industrial Equipment Loans versus Leases

Right out of the gate, loans may seem like the right option, since you own the equipment outright at the end of the term, where a lease has a balloon payment at the end should you choose to own the equipment at the end of the lease term.  Seems like an easy decision, right?  A few items to consider:

  1. Will you continue to need/use this equipment in 8, 10, or 15 years or will it be woefully obsolete? Lease.
  2. What is the residual value of the equipment after a decade or two?  For some verticals, used industrial equipment holds it’s value well and maintains a useful lifespan years after financing has concluded. Loan.
  3. What will the return be for this equipment?  If revenue generated isn’t significant, however a necessary piece of industrial equipment for your shop, consider a lower payment.  Lease.

Tax Benefits With New Equipment Acquisition

If you’re still on the fence whether you can afford the equipment, or which route to take, consider this: Section 179 Deduction applies to both loans and leases, which ultimately reduces the cost burden substantially.  We recommend speaking with your CPA to better understand how this will impact your business before committing to a loan or lease, but know that thanks to the extension and new tax code provisions, that new piece of machinery you’re eyeing just became that much more affordable.

If you have additional questions about which route to take when financing that new piece of industrial equipment, contact an ENGS Industrial Equipment Finance professional today!