Is it better to buy or lease IT equipment?

26 May 2020

There comes a point in the entrepreneurial journey where your workload necessitates that you hire some in house staff. While remote working is becoming more popular and stands to grow in popularity even after lockdown is lifted, for many small businesses, having the core of your team working together in an office still has far more benefits than disadvantages

man facing woman whilst she's on her laptop

Securing office space, and the equipment required to run an office is an expensive task, with one of the biggest expenses being kitting out of the office with the IT required to facilitate effective work.

When acquiring IT business owners have the option to purchase machines and software outright, or to lease them. While leasing technology is becoming increasingly common and is the norm with cloud-based software, it is not always the most cost-effective solution.

Rather, your decision on whether to buy or lease IT equipment should rest on the role such technology will play in your business and on how “hands-on” you want to be with managing and maintaining the technology within it.

Here are the key questions that you need to ask yourself before deciding whether to buy or lease IT equipment.

1. How much capital do I have to invest in IT equipment?

Leasing IT equipment is particularly popular among smaller and newer businesses because such businesses often do not have the capital required to purchase a fleet of computers and software.

Such a purchase can put a major dent in your cash flow, and while more established businesses can quickly cover this in monthly revenue, the risk of not having enough in the bank to cover other essential expenses such as rent and staff wages is much bigger.

While leasing IT might cost more in the long term, the effects on cash flow are less as payments are spread out over the terms of the lease (usually on a monthly basis). This frees up capital to be spent on business development activities required to increase revenue to the point where the additional costs of leasing are justified.

If you have enough capital to purchase necessary IT equipment outright, and you are not looking to upgrade your IT frequently (more on this later) then purchasing equipment might work out to be cheaper overall.

2. What competitive advantages will be gained by having the best available IT?

Leasing gives businesses access to IT equipment that they could not afford if their only option was purchasing it outright. As leasing allows you to stagger payments for equipment, you can use the IT that you have acquired to generate the revenue needed to justify any leasing premiums.

In industries where technology is central to everything you do- data science and analytics for example- this can be essential to success.

Leasing also gives you a huge amount of freedom as to when you can upgrade your machinery, as you are not financially tied down to IT that you have purchased. This can be a very important consideration if you are in an industry where innovations in technology occur at a rapid rate.

If you use computers for little more than Office tools, email, and storage, and you have no real need to change your technology stack regularly, then purchasing and owning your own machines will likely prove to be the best value option in the long term.

Office space with people working

3. What is your overall IT strategy?

The way that you acquire your IT equipment should dovetail with your overall IT strategy

While leasing allows you to swap machines in and out quickly, the freedom of owning your own IT means that you can upgrade and modify specific machines to meet specific needs.

Smaller companies, where roles are very distinct from each other, may only require certain functionalities on specific machines. In these instances, modifying your current computers is generally cheaper than replacing machines altogether.

Leasing IT does not generally allow you to do this, as you do not own your machines.

If your IT strategy favours you owning your IT, but you do not have the required capital to purchase them, you may benefit from using a business loan to finance this purchase.

More complex IT strategies that focus on integrating the latest industry innovations into their processes, will likely benefit from the flexibility of leasing. 

4. How much IT expertise is there in your business?

Once you purchase computers and other IT equipment, you have responsibility for their maintenance, troubleshooting and upgrading. 

While such purchases often come with warranties, you will generally want to have some team members who are au fait with how your machines work and who can fix problems quickly. This is particularly true for the core hardware and software that you use on a daily basis.

Having such capabilities in your business, along with owned IT gives you a huge deal of agility, particularly when it comes to troubleshooting problems.

When you lease IT, the leasing company is usually responsible for troubleshooting issues. Often you are not allowed to tinker with the machines yourself as the leasing company stands to lose out if anything goes wrong.

Leasing IT effectively outsources your IT department, and while this can slow down IT fixes, it may be beneficial to smaller businesses who cannot afford to employ IT experts on a full time basis.

There is no one size fits all answer to the question of whether to buy or lease IT equipment. The right option really depends on how you plan to utilise the technology in question, how much money you have, and whether you want to keep tasks like maintenance in house.

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Vivek Seda
Vivek Seda

Asset Lending & Property Team Lead

Vivek Seda is the Asset Based Lending & Property Team Lead at Funding Options. Vivek has been in the commercial finance industry for over five years, helping SMEs in the UK access over £40m of funding in that time. He also supports the business on working on corporate finance and structured transactions successfully funding Acquisitions and MBOs for businesses.

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