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To Buy or to Lease?
If your business needs new equipment, you KNOW that your company needs that equipment and that it makes good business sense to get it. What you may not be so sure about is the best way of getting your hands on it!
The simplest way to go about things is to explain everything to an expert and let him or her explain the pros and cons about the different options available to you to allow you to make your own decision. An expert may be able to explain things to you that you’d simply never thought of before depending on the nature of your business, the item/s sought and the state of you company’s finances.
Overall, however, the main decision you’ll need to make is whether to lease or to buy and there are pros and cons to each. A good accountant should also be able to help you make your decision.
Whether the equipment you need is machinery, IT, furniture, vehicles or computers – the principles are the same. An expert advisor will take into account various factors such as your cash-flow needs, the working life of the equipment and its probable re-sale value.
Some of the options available to you are likely to be:
Hire purchase - which enables a company to take delivery of the assets it needs immediately, whilst spreading the cost over several years - and finance can often be provided for 100% of the purchase price of the equipment.
Asset finance - which enables a company to use an asset without tying up capital. It can be the same, in principle, as a direct lease whereby a company essentially rents the asset from the funder. Ownership of the asset remains with the finance company which in turn grants right of use for a specified period.
Finance leases - which are similar as ownership of the equipment stays with the financier. In these situations, no capital allowances are available, but the equipment is capitalised in the balance sheet and depreciation is charged to the profit and loss account.
With leases, you usually get immediate and full use of the equipment for as long as you need it. The company providing finance carries the risk of the asset losing its value and there are tax advantages over hire purchase or a more traditional business loan. BUT, you don’t have ownership of the asset, which maybe something you’d prefer depending on the nature of the asset. Always seek expert advice.