Which is better for starting a business?

I would say if you can buy machinery that would be the way to go. At least when your finished with it, it's still yours. It also depends on the depreciation and availability of the machinery. Ours is quite hard to come by so we wouldn't lose that much money on it, so to us, leasing would be last option.

Theres pros and cons to both options.

Leasing - Not paying for the full amount of equipment upfront can help with cashflow and budgeting, as the cost is spread out by paying monthly fees. These monthly leasing fees are usually deductable from taxable income, reducing your tax bill. If you need to change your equipment in the future the leasing company will probably do it for you with an amendment to your monthly fees. Saves paying a lump some out again. However, you don't own the equipment, so you cannot include it as business assets and claim back capital allowances (unless it is a long term lease of I think 7 years). It will also probably cost you a lot more than if you bought it outright.

Loan - taking a business loan out to buy the equipment would mean that you own the equipment and can therefore claim capital allowances which reduces your taxable income, hence less tax to pay. Business Loan interest is also tax deductable. If you buy equipment that is expected to require a lot of maintenance or upgrading then this could prove costly in the future as you would have to find the cash again to fix it or replace it, where as leasing companies can do this for you.

Gill