Acquiring equipment is a major strategic decision for small to midsize construction businesses. It affects everything from bid selection to cash flow management to financial stability. Whether buying or leasing makes more sense depends on various factors. Here are three critical questions to ask the next time you must decide.
1. How will you use it?
The types of projects you typically pursue should play a major role in your decision. If your company specializes in a specific kind of construction, you may want to buy rather than lease. Assuming you shop carefully and acquire high-quality assets, you’ll probably get a decent return on investment. The same reasoning applies to multipurpose equipment that you can use on various projects over a relatively long period.
However, if you need an asset for a short-term job or occasional work, leasing may make more sense. Even if you plan to expand your services into a new area, you can lease equipment until you gain a foothold in the market. Generally, you don’t want to buy anything that will sit unused for long periods.
But availability is also critical. Equipment lessors may not always have the assets you need on demand. You could lose work or even breach a contract if the equipment you need isn’t available to lease.
2. Which related costs are involved?
Experienced contractors know that the purchase price isn’t the only cost they’ll incur when buying long-term assets. You also must cover costs related to maintenance, repairs, insurance, storage and transportation.
When buying an asset, you’ll first need a strong warranty to mitigate the risk of a breakdown. However, from there, your construction company must still have the expertise and resources to perform maintenance and repairs. This can be a tall order for small to midsize businesses from a cost perspective.
Under many leases — particularly full-service leases — insurance, maintenance and repair expenses are generally the lessor’s responsibility. (Specifics vary depending on an agreement’s structure and terms.) If these items are covered, the lessor should promptly repair or replace the equipment, reducing downtime on the jobsite.
3. What are the short- and long-term financial impacts?
The buy vs. lease conundrum has always been a balancing act in terms of financial impact. If you buy an asset, you own it and can therefore sell it whenever you’d like. Plus, purchasing an asset can create tax-saving opportunities.
For example, the One Big Beautiful Bill Act (OBBBA), signed into law in July, reinstates and makes permanent 100% first-year bonus depreciation for most qualifying equipment acquired and placed in service after January 19, 2025. Bonus depreciation generally allows you to deduct the entire purchase price in the year the asset is placed in service. The purchase may also be eligible for immediate expensing under Section 179 of the tax code (subject to acquisition-date rules and other limitations). Both tax breaks — which are available whether you pay cash or finance the purchase — can reduce your tax obligations and free up working capital. But you’ll still incur the additional related costs noted above.
If you don’t have enough cash on hand to buy the asset outright, financing can lessen the strain on your company’s resources. You’ll still have to come up with a down payment (typically at least 20% of the asset’s purchase price). And from a tax perspective, business interest expense deductions may be limited under current law. For 2025, the limit generally applies to companies with average annual gross receipts above $31 million for the three-year period ending with the preceding tax year. However, the OBBBA significantly enhances the business interest deduction by reinstating a more favorable calculation method.
But all that doesn’t mean buying is a no-brainer. Macroeconomic conditions are relevant, too. When inflation is high and interest rates are unpredictable, you might prefer the financial flexibility of leasing. It may also be a more viable option for businesses with limited access to capital.
For tax purposes, operating lease payments generally qualify as deductible expenses. And, because they don’t generate interest expense, you don’t have to worry about the limitation on business interest deductions. That said, lease payments for an asset are generally higher over the long run than financing costs for the same asset. In addition, you can’t claim first-year depreciation tax breaks for leased assets, and lessors may restrict asset modifications, usage hours or the type of work performed with the equipment.
No universal truth
Unfortunately, there’s no universal truth about buying or leasing construction equipment. As the saying goes, the devil is in the details. We’d be happy to help you model the cash flow impact of each option, evaluate the tax benefits available under current law and devise an equipment-acquisition strategy that aligns with your business objectives.
