Lease vs Finance equipment...Thoughts?

I recently learned that you can purchase equipment personally then lease or rent it to the company. Sounds like a double write off if done correctly,
 
Big question is how often you are going to replace it. If frequently, leasing may be a better option. But remember this when leasing: the seller is making money on you leasing it (generally more than the cost of interest), and they are making money selling a used piece of equipment after your lease.

If you bought it and sold it you are reducing their take, and increasing yours (or reducing your overall cost).

Vehicles: when leasing, you get to write off the cost of the lease AND mileage (if I understand correctly...I've never leases). Again, if you want to keep new equipment that is a way to consider. If you want to keep more money, buy and maintain...and keep it for a longer period of time. Not everyone is willing to put in long-term maintenance and it costs a lot of money over the years to lease instead.
 
ATH said:
Big question is how often you are going to replace it. If frequently, leasing may be a better option. But remember this when leasing: the seller is making money on you leasing it (generally more than the cost of interest), and they are making money selling a used piece of equipment after your lease.

If you bought it and sold it you are reducing their take, and increasing yours (or reducing your overall cost).

Vehicles: when leasing, you get to write off the cost of the lease AND mileage (if I understand correctly...I've never leases). Again, if you want to keep new equipment that is a way to consider. If you want to keep more money, buy and maintain...and keep it for a longer period of time. Not everyone is willing to put in long-term maintenance and it costs a lot of money over the years to lease instead.
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I've got a chipper and dump truck down at the moment, so the thought of constantly having new equipment seems pretty appealing at the moment.
 
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Yep...that is the trade you need to decide on. How old are those? How much scheduled maintenance do you do on them?

I'd still run the numbers...cost to buy (and resell) vs. lease. Another thing to remember with the lease, you are NEVER done with payments.

What if you take, for example, a 3 year loan on the chipper and run it for 5 years. Pay your bank account for those extra 2 years then buy your next chipper with the cash in the bank plus the resale value. After you do that, keep putting those payments into the bank and buy your next one with cash too. Cheapest way to do it for the long-term. Many equipment (and car) dealers make more money on financing than they do on selling equipment.
 
evo said:
I recently learned that you can purchase equipment personally then lease or rent it to the company. Sounds like a double write off if done correctly,
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Nope. The company can expense the lease payments and you can depreciate the equipment, but the lease payments are income against the depreciation.
 
I'd also wonder what happens to the protection of a corporate veil. If the equipment I own leads to an injury, could I be partially liable (especially if there was a maintenance issue)??? If the company owns it, only the company's assets are in play, not my personal assets (if the company I own is an LLC, LLP, S-Corp, C-Corp, etc...).
 
ATH said:
Yep...that is the trade you need to decide on. How old are those? How much scheduled maintenance do you do on them?

I'd still run the numbers...cost to buy (and resell) vs. lease. Another thing to remember with the lease, you are NEVER done with payments.

What if you take, for example, a 3 year loan on the chipper and run it for 5 years. Pay your bank account for those extra 2 years then buy your next chipper with the cash in the bank plus the resale value. After you do that, keep putting those payments into the bank and buy your next one with cash too. Cheapest way to do it for the long-term. Many equipment (and car) dealers make more money on financing than they do on selling equipment.
Click to expand...

Dump truck is a 92 with surprisingly few issues considering its age. The chipper is an 05 with high hours on it. Dealer said it belonged to a smaller municipality and had a lot of hours from "idling" most of the day. With the number of hours it has on it (over 5,000), I know there will be issues. But it sucks when it happens. We perform regular maintenance on both, but inevitably one is always going down at the worst time. This is the first time both have been down at the same time though.
 
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ATH said:
I'd also wonder what happens to the protection of a corporate veil. If the equipment I own leads to an injury, could I be partially liable (especially if there was a maintenance issue)??? If the company owns it, only the company's assets are in play, not my personal assets (if the company I own is an LLC, LLP, S-Corp, C-Corp, etc...).
Click to expand...

Ahhh! good point ATH!
 
We finally got to the point where I'll basically only consider new trucks. Obviously is the right used truck or equipment is available I'll take it. (Ex: I bought a used Gehl AL20DX with 200hrs and three attachments for $7500-I've seen people sell them for $12k.)
But this past year we are $25k in repairs.
Now that is repairs only. Not having the truck or equipment to use is costing even more. Down time always costs more!
I'm in the process of designing the perfect custom chiptruck for our style and work flow. It will be on a 33,000lb cab over chassis.


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There is a big gap between "new" and "13 year old chipper/26 year old dump truck". Off lease equipment would be 3-5 years old...Run it for another 3-5 years and still have very few mechanical breakdowns.

New is great, but not everybody can afford/justify that. I do agree, though that down time costs more than repairs. Any hint of something wrong, I get it fixed. If it going to the shop I also ask them to look for what might be next and get that fixed too.
 
ATH said:
Yep...that is the trade you need to decide on. How old are those? How much scheduled maintenance do you do on them?

I'd still run the numbers...cost to buy (and resell) vs. lease. Another thing to remember with the lease, you are NEVER done with payments.

What if you take, for example, a 3 year loan on the chipper and run it for 5 years. Pay your bank account for those extra 2 years then buy your next chipper with the cash in the bank plus the resale value. After you do that, keep putting those payments into the bank and buy your next one with cash too. Cheapest way to do it for the long-term. Many equipment (and car) dealers make more money on financing than they do on selling equipment.
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This is some sound business advise! The lease verses purchasing option is one that you need to really consider. I have heard some explain it as throwing money out the window...in regards to leasing. However, I think that for the right business model it might make a lot of sense.
I have been a huge fan of the purchasing equipment and not leasing it. For us, we buy new with a large down payment of cash. Then, we double up our payments to pay the equipment off early. Then, continue to apply those payments to a savings account for future equipment needs. We have found that continually doing this puts us into a position to pay in full for future equipment purchases. It takes a lot of time to get to that point, and you have to be carful with business profits. It can be easy to want to use that money for other reason....but you have to stay the coarse.
 
ROYCE said:
..... It takes a lot of time to get to that point, and you have to be carful with business profits. It can be easy to want to use that money for other reason....but you have to stay the coarse.
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I was talking to somebody who bought a fairly large sawmill (large for this region...small by "big sawmill" standards - 10-15 MM+ bdft per year). At least a few million dollars to buy...not sure how much.
They were able to grow it relatively quickly. He said operationally they didn't change much. I asked "how were you able to make it go when the previous owners couldn't?" His answer "We keep our hands out of the cookie jar".
 
Ask your accountant!!

Leasing has advantages as does purchasing. it really depends on your business as it is today.
If you need write off for sec 179 tax advantages then purchase. If your depreciation schedule doesn't need more on it, then leasing is an expense on your books every time you make a payment.
If cash flow will be negatively impacted by a loan then leasing will have less impact on cash flow as lease payments are always lower than loan payments.

If anyone has questions on leasing vs loans vs cash purchases, I would be happy to have a conversation with the pros and cons of each type of finance option. And if you need a new Loader, mini skid or BMG for year end sec 179 write off, I would be happy to assist in finding you the right machine and financing.

Harry 612-454-9191
Harry@topnotchequipment.com
 
B & E Enterprises said:
Ahhh! good point ATH!
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You would need to speak to an attorney, but my understanding is you create a holding company that purchases the equipment and leases/rents equipment to Tree Service. And this protects the equipment from being an asset of the tree company as it doesn't own it. There is more to doing this but I am unsure of all the legal stuff, so speak to an attorney.
I know there are some larger companies I sell equipment to that buy it in this way
 
ATH said:
Big question is how often you are going to replace it. If frequently, leasing may be a better option. But remember this when leasing: the seller is making money on you leasing it (generally more than the cost of interest), and they are making money selling a used piece of equipment after your lease.

If you bought it and sold it you are reducing their take, and increasing yours (or reducing your overall cost).

Vehicles: when leasing, you get to write off the cost of the lease AND mileage (if I understand correctly...I've never leases). Again, if you want to keep new equipment that is a way to consider. If you want to keep more money, buy and maintain...and keep it for a longer period of time. Not everyone is willing to put in long-term maintenance and it costs a lot of money over the years to lease instead.
Click to expand...
It depends on the structure. If you are referring to a in house dealership RPO then you would be correct but with a traditional bank lease with a residual value you can actually benefit as you can buy it the the end for specified value up front. If machine is worth more than residual you buy it if it is worth less you turn it in. Yes you do write off the payment as expense vs depreciation of a purchase, leasing also keeps more cash in your business as payments are lower than a loan. Freeing up cash flow for other things but every business is different and at different stages so I tell all my customers to review with their accountant what is best for the business at present moment. This year it may be to purchase but next year it may be more beneficial to lease, as business's are constantly evolving and changing and what may be the best option today may not always be the best option in the future.
Hope this helps
 
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