Should your business lease or buy equipment?

Few equipment decisions generate as much debate as lease or buy. Suppliers often push one, accountants sometimes prefer the other, and owners are left wondering which is right. The honest answer is that it depends on the asset. A durable machine you will run for a decade and a piece of technology you will replace in three years call for different approaches.

The core trade-off

	Buy (cash or chattel mortgage)	Lease (finance or operating)
Ownership	Yours	Financier’s during the term
Upfront cash	Deposit or full price	Little or none
Total cost over long life	Usually lower	Usually higher
Resale value	Yours to keep	Generally not yours
Upgrades	Sell and buy again	Built into the cycle
Tax	Depreciation and interest	Lease payments
Flexibility	Use as you like	Usage and condition terms

The business.gov.au guide to leasing or buying outlines similar considerations.

When buying usually wins

• The asset lasts a long time and you will keep it for most of its life.
• It holds resale value reasonably well.
• You want full control over how it is used and modified.
• Ownership-based tax treatment suits your position.

Examples often include workshop machinery, trucks kept for many years, durable furniture and fit-out items. A chattel mortgage lets you buy without paying the full price upfront.

When leasing usually wins

• The asset dates quickly, such as some IT, medical or specialised technology.
• You want predictable costs and regular upgrades.
• You want to keep cash and borrowing capacity free.
• Maintenance or servicing can be bundled.

See our equipment leasing review for finance and operating lease details.

How to compare properly

1. Estimate how long you will use the asset.
2. For buying: add the purchase price or total finance repayments, running costs you will bear, minus expected resale value at the end.
3. For leasing: add all lease payments, fees and any residual you would pay, plus costs you bear under the lease.
4. Compare the net totals over the same period.
5. Ask your accountant how tax applies to each, because it can change the answer.

The true cost calculator helps with the finance side.

Cash flow and capacity

Leasing can preserve cash and leave lending capacity for other needs, which matters for growing businesses. Buying with finance can do much the same if the deposit is small. Look at how each option affects your monthly cash flow and your ability to borrow for other purposes in the next year or two.

End-of-term thinking

Before choosing, read what happens at the end. With a finance lease, there may be a residual to pay. With an operating lease, return conditions such as wear standards or usage limits can bring extra charges. With a purchase, you will need to sell or keep the asset. Each has costs that belong in your comparison.

Common mistakes

• Comparing monthly payments instead of total cost.
• Ignoring resale value when buying.
• Ignoring residuals and return charges when leasing.
• Choosing one approach for every asset.
• Letting the tax tail wag the dog.

Questions to ask suppliers and financiers

1. What is the total of all payments, including any residual?
2. What happens at the end of the term, and what does each option cost?
3. Are servicing or maintenance included?
4. What usage or condition limits apply?
5. Can I end or upgrade early, and at what cost?

An illustrative example

A made-up medical imaging clinic leases its scanner because the technology will be superseded within a few years and servicing is included. The same clinic buys its reception furniture and fit-out items with a chattel mortgage, because they will last for many years and hold some value. Two assets, two decisions, each matched to how the asset is used.

A middle path: buying with a balloon

Some businesses get lease-like cash flow while still owning the asset by using a chattel mortgage with a modest balloon. Repayments are lower than a standard loan, the business owns the asset and claims ownership-based tax treatment, and at the end the balloon can be paid, refinanced or covered by a trade-in. The key is setting the balloon below the asset’s likely value at that point. It is not right for every asset, but for vehicles and machinery replaced on a predictable cycle it can combine the best of both approaches.

Reviewing the decision over time

What suits the business today may not suit it in five years. As the business grows, cash and borrowing capacity change, and the case for owning or leasing shifts. Review major equipment decisions when each lease or loan ends rather than renewing on autopilot.

Deciding on equipment finance?

If you are weighing leasing against buying for a specific asset, make one enquiry. There is no credit check when you first enquire, a real person reviews it and your details go to one lending partner rather than a list. Tell us the asset, its cost and how long you will keep it in your enquiry.