Forklift Acquisition Options: Is Leasing or Buying Best for You?
By Marcus Warner, Director of Strategic Accounts, NITCO
Leasing vs. buying. What’s the smartest way to go when your business needs a key piece of materials handling equipment? One of the challenges when weighing various leasing options against the benefits of purchasing a forklift outright is that the decision hinges on both financial and operational factors.
Companies with lighter workloads are sometimes encouraged to buy their materials handling equipment rather than lease; but so are large, profitable companies that have plenty of access to capital. So generally speaking, there is not always a cut-and-dried answer to the lease-vs.-buy question.
To determine what will work best for your company, it’s a good idea to seek input both from your accountant and from your forklift dealer. In addition to offering a diverse lineup of forklifts and materials handling equipment, top dealers will be equipped to provide detailed quotes and give you a clear breakdown on the financial benefits of leasing versus buying a particular lift truck.
Forklift leasing can give you greater financial flexibility to adapt or grow your fleet as the needs of your business evolve. Large, growing firms tend to lease their materials handling equipment because preserving access to capital is crucial as they grow. Leasing can also ensure that your fleet features the latest in forklift safety and technology.
Some of the chief benefits of forklift leasing include:
- Use the newest state-of-the-art equipment
- Expend minimal cash upfront
- Enjoy the benefits of a predetermined replacement cycle
- Avoid the responsibility of ownership
- Pay only for what you use
A trend in the materials handling industry is toward forklift leases with guaranteed service contracts. This helps the company budget a fixed monthly cost, knowing the equipment will be covered by warranty as long as it is operated within specified usage and properly maintained.
Here are several different types of forklift leasing options:
- A fair market value lease (also called a residual lease or operating lease) will generally have the lowest payments. But if you plan to keep the equipment when the lease concludes, you’ll pay its fair market value so this can be more costly in the long run.
- A full payout lease (also sometimes called a dollar buyout lease or capital lease) comes with higher payments, but you’ll own the equipment at the end of the lease term.
- A full-service lease works somewhat like a long-term rental in that you make a monthly payment and the forklift provider is responsible for reliability and repairs.
Typically, the monthly payment is reduced as you lengthen the duration of the lease. This means a longer lease may work best for those who are looking to keep the payment as low as possible. However, be sure not to extend the lease past the point where the benefits of a smaller payment are canceled out by increased maintenance costs.
Obviously, there are distinct benefits to ownership as well. Your accountant can help advise you on whether the ability to claim deductions for depreciation and interest on a forklift purchase will end up delivering a net savings at tax time.
Many forklift lease agreements place limits on hours of usage (for example, 2,000 hours annually, approximately 40 hours per week) and can therefore end up costing extra. One advantage to buying outright is that it relieves the owner of such limitations on the equipment’s workload.
Buying may also make the most sense for a business that has lighter forklift usage and therefore expects a longer equipment life, according to one school of thought. For example, one scenario in which buying might make more sense would be when your company’s forklift usage is limited (perhaps less than 1,000 hours per year) and you can expect to operate the equipment for seven to 10-plus years while keeping maintenance costs under control.
Of course, companies of all sizes and workloads find it difficult to put a price on the peace of mind and pride of ownership that comes with purchasing new. Plus, bigger, busier companies are often swayed by the tax advantages.
But the decision to lease vs. buy a forklift really comes down to crunching the numbers. Requesting quotes for two or more lease term options can make a big difference in helping you determine when rising maintenance costs begin to offset the benefit of a longer-term lease. (The potential benefits of renting forklifts and materials handling equipment is a topic for another conversation.)
Ultimately, you’ll be best served by working with a forklift dealer who understands that part of the job is to roll up their sleeves to help you fully consider both the operational and financial sides of the equation. So before you make a decision, be sure to ask for detailed price quotes that provide the information you need to determine whether leasing or buying is best for your company.
Marcus Warner Is Director of Strategic Accounts at NITCO, New England's leading provider of forklifts, material handling equipment and warehouse solutions. Marcus directs the Strategic Accounts team in maintaining, developing and securing business with larger/high profile accounts in target industries.