If you are looking to purchase
business equipment then you face three choices:
Purchase outright
You (the customer) use your
own funds to take ownership of the equipment/asset
Equipment Finance Loan
You (the customer) takes ownership
of the equipment/asset and offer the asset or another asset as security to the lender.
Equipment Finance Leasing
Lender/financier owns the equipment/asset
and agrees to lease it to the customer for a prescribed amount and period. Generally, at the end of the lease agreement the
customer may, subject to approval, offer to purchase the vehicle/equipment for the residual amount.
The advantages and disadvantages
of leasing
|
Advantages |
Disadvantages |
|
Allows the customer to defer expenses across
a longer period; rather than paying for everything up front:
Conserves working capital and lines of credit
for other profitable aspects of the business.
Ownership of the assets doesn’t produce
income – it is the use made of them that does.
|
Over the life of the item, leasing can cost
more than purchasing outright. |
|
Leasing may provide protection against interest
rate rises
Rentals remain constant for the period of
the lease but if the customer borrows money to purchase equipment, they risk interest rate rises
|
Ownership of the goods remain with the lessor
and payments are an ongoing cost usually monthly. |
Other benefits:
- Pay for equipment as you use it a lease allows for the payments to be made as the benefits are realised.
- Flexibility the lender often allows the customer to either return the equipment to the lessor, re-lease it for another
term, or exercise their purchase option.
· Conserve capital – the customer pays for the equipment only as they use it. Therefore, capital is more readily
available to use for new ideas, products, employees etc.
· No down payment 100 % is available
· Convenience – the lease can be structured to meet the customers needs
· Possible tax savings – the business can structure their lease to obtain tax benefits that
may not be possible from purchasing the equipment outright
· Fixed interest rates – these can be fixed at the time of application.
For further information on the
benefits please go to:
http://www.ato.gov.au/businesses
