One of the questions we get is the question “Why Should I Lease a Copier When I Can Just Buy the Copier?” Our answer, is, it depends…
Leasing a copier is generally done to keep cash flow working within the business as well as some accounting benefits that can come from leasing vs purchasing. Leasing is not for everyone, and just so you don’t run off and purchase a copier from another company, we are happy to sell a copier outright.
Let’s first look at some of the advantages of leasing a copier for your business. Here is where most people gain advantages in a copier lease:
- You can save your working capital to hire more employees or invest in your business in other ways
- Approvals are simple and take very little time
- Extras such as install and delivery can be included in the copier lease
- IRS Section 179 has potential savings – basically Section 179 allows you to write off the full value of equipment for your business financed during the tax year.
- You can still own the equipment if you choose the $1 Out lease rather than FMV
- Fixed monthly payments allows for simple accounting and predictable costs
- Trade the current copier up to get the latest and greatest technology
So, there may still be the question of “why lease?” when many of the benefits above are also available if you simply purchase the equipment in the first place. For example, an approval isn’t needed if you are paying with a credit card or cash. The real benefits to us are 1) Cash Flow and 2) Depreciation Allowance in IRS Section 179. Other than that, we don’t see a ton of good reasons to lease rather than purchase.
Cash Flow – Let’s say a copier costs $10,000 and you could hire a new person for $3000 per month. Some businesses will look at both of these and decide the new person could essentially help them make $10,000 in those 3 months if they hire the right person, essentially making the copier free. Of course, if the employee doesn’t work out, then they would have preferred to simply buy the copier. The basic idea is resources in a business are limited and if I pay the $10,000 today for a copier that will be used over the next 5 years, I cannot use the cash I have for other stuff. So, why not pay over time for the copier since it will be used over the time of the business operation. Most people don’t buy the building they use, they lease the building and pay over time. The same logic is used for leasing a copier.
Section 179 benefits – For companies looking to get full deductions rather than a partial deduction this year and a little more next year, etc under a depreciation schedule, a lease can be useful because it allows for the full depreciation of the asset in the year the equipment was financed. We see larger businesses and enterprises really value this facet of leasing more than the mom and pops of the world.
But I have cash now, and I don’t like payments
If this is how you feel, leasing probably is not for you. If you have the cash, don’t mind spending it and you tend to avoid payments, then leasing a copier is probably not for you. We don’t pretend everyone should for sure lease a copier. Each situation is unique, and we simply help clients lease or purchase a copier based on what they need to do.
How much is leasing going to cost me?
Most copier leases run at about 8% to 10% interest. Using Xerox Financial Services, most of ours are 6% to 8% interest rate. So, if your business has a line of credit with a better rate, maybe that will make more sense to you.
For people who love to get into the specifics of copier lease rates, we made a nice page to help you know exactly what rates your copier lease is using.
The lease rate factor on a $10,000 is .0185 which means your $10000 copier will cost $185 per month ($10,000 * .0185) – If you take the $185 and multiply by 60, you will see you are only paying about $1100 in interest for the 5 years – of course with that type of lease, you have to return the copier, so it is more of a use rate. If you do the $1 Out, it will be about $2000 you pay in interest, but remember, that is over 5 years, so it is just about $400 a year to finance a $10,000 piece of hardware. This is why many prefer to lease the copier in the first place.
If you would like to lease or purchase a copier, we would love to help your company. Just reach out to our team and we will be happy to help you out!