The Hidden Costs of Leasing
- Feb 9
- 4 min read
Many small and medium businesses (SMBs) face a critical decision when acquiring computers: should they lease or buy? Leasing might seem attractive at first glance. It offers lower upfront costs and the promise of always having up-to-date equipment. Yet, for most SMBs, leasing computers often ends up costing more in the long run and limiting flexibility. This post explores why leasing computers does not make sense for most SMBs by revealing the hidden costs and drawbacks that are often overlooked.
Upfront Savings Can Be Misleading
Leasing computers usually requires little or no initial payment, which appeals to SMBs with tight budgets. However, this upfront saving can be deceptive. When you lease, you commit to monthly payments that add up over time. These payments often include interest and fees that make the total cost significantly higher than buying outright.
For example, a computer that costs $1,200 might be leased for $50 a month over 36 months. That totals $1,800, a 50% increase over the purchase price. This difference can strain cash flow and reduce funds available for other critical business needs.
Long-Term Costs Add Up
Leasing contracts typically last two to three years. At the end of the lease, SMBs often face several choices: renew the lease, upgrade to new equipment, or buy the leased computers at a residual price. Each option has its own costs:
Renewing the lease means continuing monthly payments without owning the equipment.
Upgrading often requires signing a new lease with new fees and payments.
Buying the equipment at the end of the lease can be expensive, sometimes close to the original purchase price.
These ongoing costs can quickly exceed the price of buying computers outright, especially if the business keeps renewing leases or upgrading frequently.
Limited Flexibility and Control
Leasing agreements often come with strict terms and conditions. SMBs may face penalties for early termination or for exceeding usage limits. This lack of flexibility can be frustrating when business needs change unexpectedly.
For example, if your company grows faster than expected and needs more computers, you might have to negotiate new leases or pay penalties. Conversely, if your business downsizes, you could be stuck paying for equipment you no longer need.
Owning computers outright gives SMBs full control. They can upgrade, sell, or repurpose equipment as needed without restrictions.
Maintenance and Support Costs
Leasing companies sometimes offer maintenance and support packages bundled with leases. While this sounds convenient, these packages often come at an additional cost. SMBs may find that the included support is limited or that they pay extra for repairs and upgrades.
When you own your computers, you can choose your own service providers or handle maintenance internally, often saving money. You also have the freedom to decide when and how to upgrade hardware without being tied to lease terms.
Impact on Business Credit and Financial Statements
Leasing computers affects how SMBs report assets and liabilities. Lease payments are recorded as expenses, which can reduce taxable income but also impact profitability metrics.
Moreover, some leases are classified as liabilities on the balance sheet, potentially affecting borrowing capacity. Banks and investors may view high lease obligations as a risk, limiting access to credit or increasing borrowing costs.
Buying computers outright adds assets to the balance sheet, which can improve financial ratios and borrowing power over time.
Technology Obsolescence and Upgrade Cycles
Technology evolves rapidly. Leasing promises access to the latest equipment, but SMBs often find themselves locked into leases with outdated machines by the time the contract ends.
Upgrading through leasing can be costly and complicated. SMBs may have to return equipment in good condition, pay fees for damage or excessive wear, and negotiate new lease terms.
Owning computers allows SMBs to upgrade selectively and on their own schedule. They can extend the life of equipment when appropriate or invest in new technology when it truly benefits the business.
Case Study: A Small Marketing Agency’s Experience
A small marketing agency leased 20 laptops to equip its growing team. The monthly lease payments were manageable, and the agency enjoyed having new machines every three years.
After six years, the agency realized it had paid nearly double the purchase price in lease payments. Additionally, lease restrictions made it difficult to customize software and hardware to meet specific project needs. When the agency finally bought the laptops at the end of the lease, the residual cost was high, and the equipment was already outdated.
Switching to purchasing new computers outright allowed the agency to save money, customize equipment, and manage upgrades more effectively.
Alternatives to Leasing for SMBs
Instead of leasing, SMBs can consider these options:
Buying refurbished computers from reputable sellers to reduce upfront costs.
Financing purchases with low-interest loans or credit lines.
Implementing a hardware refresh plan that balances cost and technology needs.
Using cloud-based software and services to reduce hardware dependency.
These alternatives often provide better value and flexibility than leasing.
Summary of Key Points
Leasing computers may seem affordable but usually costs more over time.
Lease agreements limit flexibility and control over equipment.
Maintenance and support fees can add unexpected expenses.
Leasing affects financial statements and borrowing capacity.
Technology upgrades through leasing can be costly and restrictive.
Buying computers outright or exploring alternatives often makes more sense for SMBs.
Choosing how to acquire computers is a critical decision for SMBs. Understanding the hidden costs of leasing helps business owners make informed choices that support growth and financial health. Evaluate your business needs carefully and consider all options before committing to a lease.