Rent, lease, or own? It's only natural to rely on a combination of all three methods, renting equipment for one-time or short-term jobs, and buying for long-term jobs. Determining just the right mix, however, requires careful evaluation of your business position.
WHEN IT'S BEST TO BUY
Buying or financing equipment is most sensible if the equipment is essential to your core fleet and expected to provide reliable service for a long time. If you decide it's worth the large outlay of funds to buy or finance equipment, you'll find owning equipment can provide long-term tax benefits--principally from deduction of interest expense and depreciation of equipment.
WHEN IT'S BEST TO LEASE
Leasing can be an attractive option if you use some pieces of equipment frequently but don't have the resources to purchase equipment outright or make an adequate down payment. If you feel comfortable making a medium- or long-term commitment, investigate the many different leases available. As you do so, remember that leases are classified first for either tax purposes or accounting purposes. If the lease meets certain standards set by the Financial Accounting Standards Board (FASB) and is used for accounting purposes, it can be classified further as an operating lease or a finance lease. If the lease meets certain IRS guidelines and is used for tax purposes, it can be classified further as a tax lease or a nontax lease, and then again as an operating lease or a finance lease.
WHEN IT'S BEST TO RENT
One of the most flexible, risk-free options available to contractors is renting equipment through a rent-to-rent agreement. One of the chief advantages of renting equipment is that you determine when it will be returned. Renting equipment is also appealing because it frees cash or working capital for potentially more profitable uses without disturbing your line of credit.