Whether you lease or purchase assets for your business, outlaying money for equipment, vehicles or tools can be expensive and can impact your cashflow. Financing can be a good option for making large purchases – but what are the options? Both chattel mortgages and rental agreements each have its benefits and risks, plus varying tax and GST implications.
So, what is best for your business?
Under a chattel mortgage, a business receives advanced funds in order to purchase an asset. The business then takes ownership of the asset at the time of purchase, with the lender taking a mortgage over the asset as security for the loan.
||Businesses will only have clear title to the asset once the contract is completed.|
A rental agreement allows businesses to rent equipment for a fixed period. At the end of the agreement, businesses can then either buy or extend if the asset is still providing a benefit or return and upgrade to newer, more efficient technology.
||Businesses will not own equipment at the end of the fixed period|
IS ONE OPTION BETTER THAN THE OTHER?
Both chattel mortgages and leasing agreements can enable you to improve the critical infrastructure necessary to grow your business, however it’s important to assess what is most suitable for your organisation considering cashflow, balance sheet debt, asset ownership and performance ratios.
Technology and communication assets, including servers, PCs and IT infrastructure, are at risk of quickly becoming obsolete. Many businesses can lease equipment allowing them to preserve valuable capital and upgrade to newer technology as required.