Leasing vs. Buying Equipment

[Updated 2004]

The question of whether to lease or buy is a common one for our clients who are considering a larger equipment purchase than normal, are engaged in a significant expansion, or who simply wish to smooth their cash flow by spreading an equipment investment over a number of years.

FMV vs $1 buyout
The two forms of leases that are generally appropriate for our clients are known as Fair Market Value (FMV) or One Dollar Buyout ($1 Buyout). This page succinctly compares these two types of leases (included in the table are two additional types not generally relevant to this discussion).

The most significant difference between an FMV and a $1 buyout lease lies in whether you wish to keep the equipment at the end of the lease term. If you do wish to keep the equipment at the end of a FMV lease term, you are required to buy the equipment from the leasing company for the fair market value (usually approximately 15-0% of the initial purchase cost). At the end of the $1 buyout lease, however, it is assumed you will be keeping the equipment and doing so involves no (or a token) additional investment.

Because most design and creative firms continue to repurpose equipment far past the peak of its useful life (and far past 3 years), we always suggest clients go with $1 buyout leases.

Length of lease
Leases come in terms ranging from 12 to 60 months. We generally strongly prefer that our clients commit to leases no greater than 36 months for computer equipment.

Other expenses
There are numerous other distinctions that vary from leasing company to company, including if service (fees) can be included in a lease and if software or other soft goods can be included.

Rule of thumb
When considering the cost of a lease versus buying equipment outright, a useful rule of thumb is that if the equipment would cost $30,000 outright, then spread over a 36 month $1 buyout lease, the total expenditure would be approximately $36,000.