Should SMEs Lease Versus Buy Their Equipment, Furniture and Machinery?
For companies in 2014 – and particularly for SMES – cash flow remains key to running a viable business. So when it comes to investing in new business assets, for example manufacturing equipment, kitchen and catering equipment, office furniture and fit outs and refurbishments, IT infrastructure and computer hardware and software, you name it…, there is always a trade-off to be made.
Should you tie up existing capital and lines of credit to grow your business, or do you wait for better times, but risk losing competitive edge and profits? Or do you look at other options such as leasing…
Why Is Leasing Popular With SMES?
Leasing is a popular solution for SMEs looking to acquire fixed assets such as machinery and equipment.
There are several types of lease agreement, which allow companies to acquire the assets they need to run their businesses without upfront capital outlay. What leasing does is enable you to pay for the equipment you need over a fixed period of time – typically two to five years – through a series of contractual, tax deductible payments.
Under a commercial agreement, the leasing company (the lessor) buys and owns the asset. The customer (or lessee) then hires use of the asset, paying rental over a fixed period. At the end of the contract, the customer usually has a choice of extending the lease, buying the asset or simply returning it.
Whether for specialist machinery, recycling equipment, photocopiers or any sector-specific investment, leasing offers the benefit of allowing you to spread the payment cost over the useful life of the asset.
5 Additional Benefits of Leasing v Buying Business Equipment
- You can update your equipment more easily in future. Technology changes rapidly and avoiding obsolescence is key to staying ahead. With leasing you can enhance or upgrade your equipment as the need arises.
- Lease finance agreements can be tailored to suit your particular business requirements and include whatever combination of business equipment and related services you require under one lease agreement for easier budgeting and administration.
- Lease agreements should be transparent so you can see exactly how much interest you are paying. They don’t have to be secured against private property, and agreements cannot be cancelled by the lender unless the company leasing the item falls behind on payments.
- Tailored agreements can be over an agreed period, usually 2 to 5 years, and repayments can be made monthly, quarterly or annually by direct debit or invoice, whichever is most convenient. Lease payments can even be tailored to match your seasonal cash flow – a bonus for many small businesses.
- Regular, monthly payments can qualify as a trading expense and are therefore tax deductible, making the acquisition of essential assets more cost-effective.
Is It Better to Lease Versus Buy New Equipment and Machinery?
Clearly every business should carefully assess their options in this respect and also the types of equipment leases available as well as the best leasing deals around as these can vary.
However in most cases there is a strong argument for making the lease versus purchase comparison before committing funds either way. You can find out a lot more about the mechanics of leasing by downloading Financing Your Business Plans – the free WestWon guide to leasing.
If you know what equipment you require and how much it costs, you can also get an instant leasing quote online by using the WestWon equipment lease cost calculator. And, of course, you can always call our leasing helpline on Tel: 01494 611 456 and we’ll be happy to answer any queries you may have.
