Benefits Of Finance
The major reasons why you should consider finance for your equipment acquisition include:
No Capital Outlay
The finance option requires no initial capital expenditure. By conserving capital, financing can enable funds to be better utilised in the running of the business and can also free-up capital for investment purposes. Financing options require only a monthly outlay rather than a major dollar outlay. Financing can also provide an extra source of credit that leaves existing lines of credit unaffected.
Flexible To Suit your Needs
Financing can usually be catered to your specific needs whether it is via lease or rental. Structured payments can also be organised, for example paying quarterly, half yearly, annually or up front payments. The budgeting process is also simplified as financing guarantees a fixed payment for a specified term.
Tax And Accounting Benefits
As long as the equipment is used for business purposes, tax deductions are available. Under a hire purchase, the depreciation of the equipment and the interest component of the agreement are tax deductible. Under a lease and rental, the monthly installments are tax deductible.
As rentals are treated as an operating expense, they may qualify as off balance sheet financing. This results in avoiding the equity accounting calculations that are applicable to other forms of finance.
Multiple Options At End Of Term (Rental Option)
Subject to the terms and conditions of the rental agreement, at the end of the rental term you may choose from various options such as:
- Upgrade the equipment
- Extend the rental contract to rent the equipment at a discounted rate over a nominated term.
- Continue to rent the equipment on a month-to-month basis.
- Offer to purchase the equipment for fair market value.
- Return the equipment with no residual obligation.
If you choose to purchase the equipment, you would outlay the full cost of equipment at today’s dollar value. Over the life of the equipment, a portion of this cash outlay is “recovered” by depreciation. As a result of inflation, the dollars recovered through depreciation are continually decreasing in value.