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Should You Buy or Rent Test Equipment

seesaw showing benefit and cost of renting or buying

To view this article offline click Should You Buy or Rent Test Equipment to download PDF file.

You know you need test equipment and that means you have to decide whether to rent or buy. At TDS, we help make your decision to rent or buy an easier one. We offer rental, leasing, and buying of new and used equipment.

There are, of course, advantages and disadvantages to renting and buying. You can use a risk-assessment or cost-comparison approach to determine the soundest decision for renting or buying your test equipment.

Let’s look at the major differences:

Factor Rent Buy
Number of items needed If you require a significant amount of equipment, renting may be a better option, especially when you could use that capital for other expenses that will help grow your business. If your equipment requirements are small and you have the money (or a low-interest loan) then buying might be the better option.
Getting the equipment Renting involves some paperwork, questions on how the equipment will be used and an analysis of your financial information. Buying equipment can sometimes be completed in a single transaction.
Up-to-date equipment Test equipment, like computers, will eventually become obsolete. With renting, after the contract expires, you are free to rent newer and better test equipment. You will eventually be stuck with outdated equipment. However, you can set-up a depreciation schedule to better compute your cost over the life of the item.
Flexibility Renting allows you to perform seasonal, temporary or specialized work. You can rent a specific item for a particular job at the time that you need it. Very little flexibility.
Maintenance Renting can cut costs by eliminating the need for storage, maintenance, repair parts, a service area and maintenance staff. The rental company’s support professionals are trained on the general and specialized equipment for rent. You determine the maintenance schedule yourself. You will also have to cover all the maintenance and repair costs which can many times double the cost of the equipment over its lifetime.
Financial aspect Most rentals will pay based on a net 30 arrangement (depending on credit approval). Paying outright may be too expensive for most, taxes also need to be considered.
Tax implications Operating leases only allow you to deduct from the monthly payment. Buying equipment offers immediate ownership, and deductions for depreciation and interest can save the company on taxes.

When you buy equipment, paying outright may be too much for your business. Renting can enable you to acquire sophisticated equipment that may not be affordable with a purchase. You have a pre-determined regular (e.g. monthly) expense which can help you budget more effectively. Lease payments may be lower throughout the term, and sales tax is added to each payment instead of a lump sum when doing a purchase.

Cost Implications of Renting versus Buying

For tax considerations, buying equipment offers immediate ownership, and deductions for depreciation and interest can save the company on taxes. A company will finance the purchase of the equipment, this will be added to the balance sheet as an asset, and the debt is noted as a liability. In addition, IRS code lets you deduct the full cost of newly purchased assets in the first year.

Operating leases only allow you to deduct the monthly payment. Companies can write off each lease payment as an expense on their taxes. The lessor keeps the depreciation and passes on that benefit to the lessee in the form of a lower lease payment.

Buying Test Equipment

Ask yourself the following questions. If your answer is yes to most of the question, then it may be best to purchase that equipment:

  • Is your equipment requirement relatively small and do you have the money (or a low-interest loan) for it?
  • Will the equipment be a general-purpose item? Will it be used for many projects in the course of the year?
  • Does it need to be available instantly?
  • Do you have a trained operator available on site that can perform inspections and repairs?

Another option is to buy used equipment. This is another competitive factor in the rent-or-buy comparison.  Companies need to be sure that the equipment is operational and comes with a seller’s guarantee, operating and maintenance manuals, and accessories.  Learn more about this option in Buy new and used test equipment.

Renting Test Equipment

If you have decided to rent your test equipment, it’s important that you rent from a reputable provider who will give you favorable terms and outstanding service and support.

Is there a buyout option?

  • Fair-market value (FMV) option – you can buy the equipment when the lease expires for its fair-market value, which could be hundreds of dollars less than purchasing new.
  • $1 buyout option – the equipment is yours for $1 when the lease expires; monthly payments are usually higher than FMV option.
  • Some dealers offer the rental-purchase option; this is for customers who may want to learn more about the piece of equipment by trying it out first before investing. The rental payment, typically lasting for six months, can be applied to a down payment if the contractor then decides to buy the equipment.

How long is the lease for?

  • The longer you lease, the lower your monthly payments, however, you risk paying more with a longer lease.

Does the equipment have to be insured?

  • Some leasing companies require you to insure the leased equipment; otherwise, fees may be added to your monthly payment to cover insurance.

What type of maintenance support do they provide?

  • Is there a 24/7 support in case you run into equipment issues after hours?
  • Does it come with a worry-free guarantee assuring you that the equipment will be serviced and properly maintained?
  • Does equipment maintenance cover cost for both parts and labor?

Can I add to the lease?

  • Most leasing companies don’t mind adding to the existing lease, your payment will be recalculated accordingly.

Can I terminate the lease early?

  • If you no longer need the equipment or want to upgrade to newer technology soon, find out if you can pay off your lease early and how much is the penalty, if any.

The Man Behind TDS Rentals & Leasing

Technical Diagnostics Services’ (TDS) very own Stephen L. Sewell is the Vice President of Rentals & Leasing LLC. Stephen is responsible for all areas of the equipment rental, sales, calibration and asset management business and serves as a member of the TDS executive management team.

Stephen began his career as a technician and quickly progressed into sales and sales management with General Electric. Some notable accomplishments; He was a senior member of the GE Capital sales management team who doubled the business in just three years.

He played a key role in the profitable divestiture of the business unit in 1997. He held senior management positions at AT&T Capital, CIT Group, Newcourt Financial, Tyco, TRS-Rentelco and Microlease. During his tenure with AT&T Capital he lead the team to double digit growth domestically and opened the door for Latin America operations.

At Microlease he successfully partnered with the original equipment manufacturers to drive growth in excess of thirty-five percent per annum. He once again opened the door to the Latin America operations during this tenure. He assisted several fortune 500 clients with better ways to manage their equipment assets to maximize return saving them millions of dollars in the process.

Stephen has a history of successfully managing and delivering best in class services and products to the market. He can be reached at ssewell@technicaldiagnostic.com.

About TDS Rentals

Technical Diagnostic Services (TDS) has led the Test Equipment Rental Industry for more than 20 years. We’ve built our reputation by continually providing quality service, excellent equipment and a dedicated support staff that go above and beyond to ensure our clients satisfaction with the best solutions available. Let us help you benefit from the many advantages renting from us provides, call us at 817.465-9494 and speak with one of our experienced agents to find the best solution for project today!

 

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