Finding a balance between a desire to have the latest technology and equipment and its costs can be like walking a tightrope. All businesses want to be using the latest and greatest tools, but what is the best way to finance it? Do you lease(rent) or buy? Understanding the opportunity cost of capital associated when purchasing equipment is the key.
Is it important to your business to own your equipment outright?
Well, that’s debatable – and often a regular discussion between CIOs and CFOs! Be clear about your business objectives and the pros and cons of owning equipment
- What is the life expectancy of the equipment?
- Do the numbers stack up regarding deprecation, value for money, and return on investment?
- Does the equipment have a strong resale value, if any?
Importantly, could the money allocated to pay for a piece of equipment be better used elsewhere? The impact of tying up funds on buying equipment outright might restrict your ability to fund other goals or projects within your business.
What are the alternatives?
If the availability of liquid funds is more appealing, leasing equipment can be an ideal approach. Not only can leasing help to streamline cash flow and budgeting by reducing the initial outlay and paying a fixed fee for the duration of the lease, it can also reduce the total cost of asset ownership, keep debt off your balance sheet, improve performance ratios, and preserve credit lines and working capital.
With the risk of today’s technology quickly becoming obsolete, leasing also ensures that you have access to the latest equipment and technology. Financiers offer flexible contract terms from 12 to 60 months, an option to bundle multiple assets for cost efficiency, and the ability to upgrade to newer equipment or technology as required.
Based on a Rental, financiers can ensure a lower cost of capital via removing the residual risk from you with no further obligation at the end of term other than to simply hand back the equipment (alternatively an option to purchase is given). The total solution cost is generally cheaper via leasing the equipment compared to traditional loans with no additional security required other than the equipment. Renting the equipment also removes the headache of disposing old equipment with a simple upgrade at the end of term to the latest technology.
Managing costs while taking on new growth opportunities can be a constant juggling act, but planning ahead – particularly when making decisions around purchasing capital equipment means your business should never have to choose one at the expense of the other.