Lease or Buy?

Looking to acquire a large item, such as office equipment, furniture, or even a car and not sure whether to lease, or buy? The following information may help you decide which option is best for you.

Cash
A cash transaction is the exchange of goods, or services for cash money. The benefit of cash is:

• there are no interest fees, or charges;
• in some cases, you can negotiate the price of the item(s);
• you own the goods immediately;

Finance Lease
Finance lease is the renting of goods for a set period of time in exchange for a lease payment schedule, which is generally monthly. The benefits of leasing include:

• lease payments can be fully tax deductable, where the goods are used for business purposes;
• a deposit is not required;
• contract terms can be arranged for terms of one to five years and payments can be arranged to suite your cash flow;
• at the end of the lease term you return the goods and finalise the lease arrangements;
• although the lender owns the goods and generally there is no option for you to purchase the goods during, or at the end of the lease contract, most lenders will consider an offer from you to purchase the goods for the residual value, at the end of the lease term;

Asset Finance
Asset finance, also known as hire purchase, chattel mortgage, asset purchase, or national commercial loan, is another effective way to purchase goods for business purposes and is similar to a finance loan.

When entering into an asset finance arrangement, the following applies:

• the goods belong to you as soon as you have entered into the purchase agreement, allowing for loan repayments, interest charges and depreciation to be fully tax deductable where the goods are used for business purposes;
• a deposit is required, as is a final balloon. A balloon is a payment to an agreed amount, that is required to be paid at the term of the agreement to finalise the loan;
• the smaller the balloon, the larger the monthly loan repayments. The larger the balloon, the smaller the monthly loan repayments;
• contract terms are generally for terms of three to five years;

Equipment Rental
Renting equipment, such as office furniture, computers, printers and photocopiers, is a simple arrangement that does not require a deposit, does not use your own capital and has a large degree of flexibility to it. It is the renting of equipment for a set period of time in exchange for a lease payment.

The benefits of renting equipment are:

• you are able to add to your equipment at any time;
• you are able to return the existing equipment and upgrade at the expiration of the lease term;
• although the lender owns the goods and generally there is no option for you to purchase the goods during, or at the end of the lease contract, most lenders will consider an offer from you to purchase the goods for the residual value, at the end of the lease term;
• lease payments can be fully tax deductable, where the goods are used for business purposes;
• at the end of the lease term you return the goods and finalise the lease arrangements;
• in most cases for electrical equipment, the lease agreement includes a service plan;
• the equipment and the cost of such, other than the rental, does not show in your balance sheet ie: it does not show as a large purchase;

Whilst this information may assist you in determining what arrangement best suits your needs, it is recommended that you discuss your options with your Accountant, prior to entering into any arrangements.

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