Having an IT network requires you to have hardware in place to support it.
If you rely on a managed IT services provider (MSP) for IT support, it’ll require you to meet hardware standards, and you’ll have the option to buy or lease that hardware.
Just like a buying or leasing a house or a vehicle, there are pros and cons to leasing and purchasing IT hardware.
Generally, purchasing hardware is the most cost-effective option when you’re thinking long term. However, there are situations where it makes more sense for companies to lease instead.
As an MSP, The KR Group has both sold and lent hardware to our customers. Some of the situations where we frequently see customers considering the differences between leasing and purchasing hardware include:
- Purchasing is more cost-efficient.
- Leasing makes more sense when budgeting.
- Leasing can meet short-term needs.
- Purchasing hardware is required if you have sensitive data.
Which situation applies to you depends on the unique characteristics of your business, but in this article, we’ll try to help you determine whether you should purchase or lease your IT hardware.
Purchasing vs. leasing hardware: cost-efficiency
When purchasing IT hardware, you’ll make one large initial payment for the equipment. Whereas when you lease, you’ll be paying a recurring smaller amount to borrow an MSP’s equipment.
Why is purchasing better?
Although initially purchasing IT hardware is more expensive, ideally, that upfront cost will give you several years with the device you purchased.
Choosing this option is cost-efficient because you receive more value for your investment the longer you use the hardware.
You also may be eligible for tax benefits when you purchase eligible IT equipment and/or software. If you end up purchasing hardware, make sure you consult your tax professional about Section 179 deductions.
What’s wrong with leasing?
While there are reasons leasing makes more sense for some companies (which we’ll discuss later), over time, you’ll spend more if you lease the same equipment.
And if you do decide to make the investment and purchase your own IT equipment, in most cases, you’ll have to repay to purchase your own equipment.
Some technology manufacturers offer payment programs, such as Cisco Capital, where you can make installments to purchase your hardware. However, this is different from leasing from an MSP who is letting you pay to use their hardware.
Purchasing vs. leasing hardware: budgeting
When it comes to paying for hardware, the purchasing vs. leasing argument is more than simply long-term cost-effectiveness.
For many companies, how they pay for IT hardware (one lump sum or recurring payments) can change where the expense comes out of their account.
Why is leasing better?
Generally, businesses have a more flexible operational account than capital expense account.
In this situation, leasing might make more sense since it can be tied to the monthly rate of managed services. You can categorize your recurring IT expenses as an operational cost, like electricity, water, and gas.
What’s wrong with purchasing?
When you’re looking to implement new hardware, the upfront cost can be too steep for some businesses.
Leasing not only brings new hardware within reach for companies with strict budgets, but it also allows them to consider it a recurring expense instead of a capital expense.
For businesses that have more flexibility in their recurring expenses accounts than their capital expenses, leasing might be the better option.
Purchasing vs. leasing: short-term needs
We talked about how purchasing IT hardware makes the most sense over time, but not every IT need is long term.
For example, if you need to temporarily replace hardware until your budget cycle renews, you might only need an option for a few months. By renting the hardware, you’ll still be able to use hardware while you plan to buy your own.
Why is leasing better?
In this situation, leasing makes sense when the total you’ll pay for leasing the hardware is less than the purchase price.
You’re also not using it as a long term solution in this scenario, and leasing makes sense to help you get to the point where you’re able to purchase the hardware
What’s wrong with purchasing?
If you’re considering your immediate, short-term needs with budget constraints, purchasing isn’t always an option.
Hardware failures don’t wait for budgets, but you rely on that hardware to operate and make money. Allowing an option other than purchasing in full can make an IT resolution more budget-friendly.
Purchasing vs. leasing: sensitive data
For some companies, leasing hardware might not be an option, though.
Regulations, like HIPAA or FACTA, require companies to take measures to prevent exposures of confidential information.
When it comes to paper documents, companies bound by HIPAA or FACTA shred them. Similarly, many organizations physically destroy hardware that contains confidential data.
If you know you’ll need to destroy a device at the end of its life, you’ll want to purchase it instead of buying it.
Why is purchasing better?
When you purchase your hardware, you are free to do whatever you want to with it.
On the other hand, leased hardware is not your own hardware. You’re borrowing it from your MSP, and you’ll need to return it (in one piece) when you’re done leasing it.
What’s wrong with leasing?
Leasing your hardware simply isn’t an option if you’re bound by regulations that require you to physically destroy components of the device.
If you delete data from the device, data still remains on the hardware, which could compromise patients’ or customers’ confidentiality.
When it comes to proper disposal, physical destruction is the best way to prevent others from retrieving information from your devices’ hard drives.
Should you purchase or lease your managed services IT hardware?
Ultimately, you know your business’s needs best and whether you should purchase or lease IT equipment.
In general, purchasing hardware makes the most sense for most companies and is what most of our managed services customers choose.
You’ll save money in the long term, and since you purchase the equipment, you can physically destroy it if you need to.
Leasing hardware has its purpose, though. If you’re a business looking for a recurring expense for budgetary reasons or you need an immediate solution without the capital to purchase the hardware, leasing hardware ensures you’re up and running.
To see other ways an MSP can help you maintain your IT environment, check out some of our other articles: