Should I buy or should I lease? The competitive nature of financing has made this decision most difficult for the entrepreneur. It typically comes down to the overall philosophy of the business entity and/or the overall liquidity position of the company.

Banks will typically finance 80% of the purchase price or market value of a piece of equipment in order to provide a reasonable margin of risk. When considering the acquisition of a $200,000 piece of equipment, $40,000 out of a company's daily cash flow can be quite a bite. Traditional leasing options may reduce that out of pocket cost by as much as two-thirds. However, they will require the first and last month's payments - far cry from the traditional down payment.

So, what is the best option for a company? When purchasing equipment for the long term, a typical recommendation is that the company buy the equipment. If liquidity is a major problem or if the company prefers to "trade in" their equipment at the end of a lease, then the correct decision should be lease.

Currently, rates on leases have become more aggressive, making them more competitive with traditional financing. Leases do not disclose a company's borrowing rate, thus it is important to properly analyze the payment to estimate the rate. While in most cases 100% of a lease payment is deductible for tax purposes, traditional financing only allows for the deduction of interest. However, depreciation expense and one time tax credits still make traditional financing very attractive. Since purchasing equipment places the asset in the company's name, the company is responsible for any property taxes and other expenses related to the acquired equipment. Most leases also transfer the responsibility of upkeep and taxes to the lessee. However, since the transfer of title does not occur in a lease, on must be very careful to address any tax issues involved. Most leases transfer this responsibility to the lessee.

So, as a business owner, what is the right choice? It all depends on the company's overall strategy. Typically new business start-ups or those companies with very tight cash positions should consider leasing. Those more established concerns with long term use of the property in question should in most cases simply purchase. If a company happens to be in the enviable position of weighing either alternative, then check with an accountant to weigh options. The company's tax situation may provide the best answer.