Whether to Lease or Buy IT Equipment.Asset finance allows businesses to acquire the equipment and assets they need in order to operate that they may otherwise be unable to afford. It can also free up working capital for use in other areas of your business and save you from having to take out a large loan to buy equipment outright. There are two main forms of asset finance:
- Leasing – renting it over a period in return for fixed rental payments.
- Hire purchase arrangements – an initial deposit is paid towards the cost of the asset and the balance is then paid in instalments over a period of time. At the end of the hire purchase period, you would make a final payment and gain ownership of the asset.
Advantages of leasing or renting equipment.There are several advantages of leasing or renting equipment:
- you don’t have to pay the full cost of the asset up front, so you don’t use up your cash or have to borrow money
- you have access to a higher standard of equipment, which might be too expensive for you to buy outright
- you pay for the asset over the fixed period of time that you use it, which helps you budget for the future
- as interest rates on monthly rental costs are usually fixed, it is easier to forecast cashflow
- you can spread the cost over a longer period of time and match payments to your income
- the business can usually deduct the full cost of lease rentals from taxable income
- if you have not bought the asset outright, you won’t have to worry about any overdraft or other loan taken out to finance the purchase being withdrawn at short notice, forcing early repayment
- if you use an operating lease or contract hire, you may not have to worry about maintenance
- the leasing company carries the risks if the equipment breaks down
- the leasing company can usually get better deals on price than a small business could and will have superior product knowledge
- on ‘long funding leases’ – finance leases over seven years and sometimes over five years; and some long operating leases – you can claim capital allowances on the cost of the assets
- if you need to upgrade or replace the equipment, you can simply make a small adjustment to your regular payment rather than invest a lump sum upfront