When Gil Grieve wanted to put two new paint booths into his shop a couple of years ago, he knew he would purchase them outright.

“Some things I’ll lease and some things I’ll purchase,” said Grieve, owner of Concours Body Shop in Reno, Nevada. “When I first started in business, I was in debt up to my eyeballs for the first seven or eight years. I was getting started and, of course, I leased everything. But once I got through that, I rethought how I make purchases. If it’s something that’s a real high-wear item, like an air conditioning machine, that you know is going to last four or five years, I’ll lease it and depreciate it out. But big stuff – frame racks or measuring systems or paint booths – I’ll just purchase.”

Grieve’s decisions regarding leasing versus purchasing track with what business and accounting experts generally recommend. Leasing equipment, they say, can be a better option for business owners who have limited capital or who need equipment that must be upgraded every few years, while purchasing equipment is often a better option for established businesses or for equipment that has a long, usable life.

But here’s a look at the advantages and disadvantages of both options – and some tips on deciding which is best for your business.

Leasing preserves capital

Leasing equipment was a logical choice for Grieve in the late 1980s when he was just starting out as a shop owner because he didn’t have the cash to make outright purchases. Equipment leases often require little or no down payment, so you can obtain the tools and equipment you need without significantly affecting your cash flow.

Another financial benefit of leasing equipment is that your lease payments can usually be deducted as a business expense on your tax return, reducing the net cost of your lease. Leases also are generally easier to obtain and have more flexible terms than loans for buying equipment. This can be a significant advantage if you have limited credit or need to negotiate a longer payment plan to lower your costs.

Grieve also has learned another benefit of leasing some equipment. Leasing items that have a reasonably short expected life-span or that are subject to becoming technologically outdated in a short period of time, can make good sense. It passes the burden of such obsolescence onto the lessor, because your business can walk away at the end of the lease and get a new, up-to-date replacement.

There are downsides to leasing, however, including the fact that it can cost you more in the long run. As Grieve struggled to overcome the initial debt he took on starting the business, he realized leasing equipment is almost always more expensive than purchasing it.