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Deciding whether to lease or buy business assets

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Introduction

To be able to operate successfully, your business may need to acquire assets or capital equipment such as solar systems or vending equipment.
You could buy all of this equipment outright, or you might decide to rent or lease it instead. There are advantages and disadvantages in both options. This guide explains how the choice between buying and leasing can affect your business.

The pros and cons of leasing or renting business equipment

Leasing or renting an asset means you can free up working capital for use in other areas of your business and you don’t need to take out large loans to pay for it.

You should certainly think about leasing or renting equipment that has high capital or maintenance costs, can quickly become out-dated or is used as a consumables asset – we will define ‘consumables asset’ presently. Solar, Office Equipment (like copiers and printers) and Vending equipment from our UKV specialist trading companies are particularly lease-friendly and we even organise and may underwrite the lease for you.

With Solar you will be looking to make environmentally healthy, cheap electricity. You will be seeking to help preserve our planet; you will want to enjoy the marketing advantage of being known as an environmentally conscious organisation – but you will want the advantage most essential to your bottom-line trading figures: you will want fixed cost power at a significantly reduced price. One of the few costs we all have little control over yet is essential to us all is the cost of the power we use in our businesses, organisations and home lives.

Most of us have considered the benefits of Solar energy generation but what keeps many of us from proceeding is the high capital cost of acquisition. We are used to paying our ever-rising power bills monthly or quarterly in bite sized chunks and whilst these bites keep getting bigger and bigger we accept them because of our budgetary restrictions. But no more – we no longer need to put off using clean, free Solar energy because we can now rent the hardware. In the same way you have been used to paying your electricity supplier monthly or quarterly, you can do the same for your Solar power system. The difference is the price will not change and remains a fixed low cost that also comes out of your consumables budget – and unlike your present power supply has not been generated at the cost of the world you live in.

Some advantages of leasing or renting Solar equipment:

• you don’t have to pay the full cost of the Solar asset up front, so you don’t use up your cash or have to borrow money
• you have access to a higher standard of equipment, the cost of which may be prohibitive if you chose to buy it outright
• you pay for the Solar asset over the fixed period of time that you use it, which helps you to budget for the future
• as interest rates on monthly rental costs are usually fixed, it is easier for your business to forecast cashflow
• you can spread the cost over a longer period of time and match payments to your income
• the business can usually deduct the full cost of lease rentals from taxable income
• you won’t have to worry about an overdraft or other loan being withdrawn at short notice, forcing early repayment(except in the case of long-funding leases)
• if you use an operating lease or contract hire, you may not have to worry about maintenance
• the leasing or hiring company can usually get better deals on price than a small company and will have superior product knowledge
• if you need to upgrade or replace the equipment, you can simply make a small adjustment to your regular payment rather than invest a lump sum upfront

(Martin Button is the Managing Director of UK Vending (Britain’s longest serving vending business)
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