It just depends on how you feel about debt and accepting a financing plan rather than buying outright. Nearly every equipment purchase I have made since beginning in 1983 has been with a lease-purchase arrangement.
The upside is you can pay for the purchase out of the profits frm the work it produces. The downside is that if you are wrong and the equipment doesn't earn enough profits for you, you are still obligated for the sum of the lease payments and cannot prepay your lease early at any savings from the total obligation of the lease. The result is that on most leases you will owe more (be upside down) on the lease for about the first 80% of its term than the equipment would bring if you sold it as used equipment.
The other issue is what happens at the end of the lease. There are usually three different options which you choose at the onset. Each option effects what your monthly lease payment will be.
- The equipment goes back to the lessor at the end of the term of the lease.
- The equipment either goes back to the lessor or you can buy it for either a percentage of the original value or "fair market value".
- The equipment either goes back to the lessor or you can buy it for $1.00.
For example, I own a Gerber Edge and Envision plotter which I acquired new in 1999 by entering into a 60 month lease-purchase plan through my bank. It never failed after the first two months to generate more profits than the cost of the monthly payment. At the end of the lease, for $1.00 it was mine. Now, almost three years without a monthly payment, the equipment continues to generate enough profits to cover my overhead and pay me a living income.
My point is that changes in the technology do not necessarily mean that a tool or a piece of equipment should be discarded. If it was good enough to acquire in the first place and is running okay and your customers will still buy what comes out of it, why would you want to let it go and go back into debt?
Lease-purchase agreements, IMHO, are best suited as forms of alternative financing ... not as a long term rental agreement in which you never build equity or end up owning the equipment.
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