If your business needs new equipment, should you buy it or lease it?
If you don’t know then it’s important to consider the benefits of both leasing and buying equipment, as explained by SME business Director, David Teasdale of Dishwasher’s Direct.
Innovation – It is often advantageous to businesses to lease commercial equipment rather than going to the expense of buying their own. The main advantage, apart from the capital outlay, is that a business will have access to the very latest technology, without having to set aside the capital that would be necessary to keep up with the latest equipment innovation.
Cash-flow – A relatively small and predictable amount of cash going out of your bank account is often better for a small business than a large cash outflow spike. Also, a lease is more likely to be less onerous than borrowing money from the bank which often has undesirable strings attached.
Tax – All leased equipment can, of course, be offset against tax, which is another big advantage of leasing. This is something that sole traders as well as partnerships and limited companies can all benefit from.
Less paperwork – Buying equipment is easy -you decide what you need, then go out and buy it. Taking out a lease, however, involves at least some paperwork, as leasing companies often ask for detailed, updated financial information. This can cause delay, which can be inconvenient if you need the equipment urgently.
Credit rating – Leasing companies will always dig into your finances and determine your credit rating. If you have poor credit rating then the lease will cost more. It may be that they will ask for personal guarantees too. If you can get the cash together by other means then you can avoid all this bother.
Maintenance management – Equipment leases sometimes require you to maintain equipment according to the leasing company’s specifications, and that can get expensive. When you buy the equipment outright, you determine the maintenance schedule yourself.
Understanding 0% finance
Where leasing is concerned, there may be the option to take up an offer of 0% finance. The essence of any finance is that you are borrowing money to defer payment, with interest bearing costing the customer and interest free leasing costing the vendor. Because interest free is costly to the vendor, they tend to think very carefully about if and when to use the offer. This doesn’t mean that you should be sceptical – unless 0% is continually being offered by a vendor, it is probably worth taking it up.
Knowing your needs
Ultimately, if your equipment requirements are relatively small and you have the money, then buying it may save you money in the long-run. However, if you require a substantial amount of equipment for your business and want to keep up with all the latest innovation trends, then leasing may be a better option for you.
Where SMEs are concerned, not tying up a large amount of cash on equipment will allow you to keep valuable capital free for more strategic uses within your business.