Lease Or Buy
Finance or buy? Weighing up the options
Here's a checklist to help you decide whether to lease or buy office technology or large plant and equipment.
Cash purchase
The traditional purchase transaction is the exchange of a good or service for money. This has several benefits:
- You take ownership of the goods immediately.
- There are no additional costs (such as interest charges) incurred.
- You may be able to negotiate a discount on the goods to be bought.
Finance Lease
Leasing gives you immediate use of new equipment without tying up your capital. Contracts can vary between 12 to 60 months with repayments remaining fixed throughout the term. Minimum transaction size is $15,000.
The benefits of leasing are: - Lease payments may be fully tax-deductible if goods are used for business purposes. Ask your accountant if you qualify.
- No initial deposit
- A bulk limit facility provides a line of credit, which can be drawn down over time as your needs for new equipment arise.
- Payments can be arranged to suit your cash flow requirements. This could include any regular or irregular payment schedule.
Asset finance
Asset finance is a tax-effective way to finance the purchase of equipment for business purposes. Because legislation relating to asset finance varies from state to state, it is available in various forms: - Hire purchase
- Chattel mortgage
- Commercial hire purchase
- Asset purchase
- National commercial loan or bill of sale.
The difference between asset finance and finance lease agreements is that, for asset finance, the customer is considered to be the owner of the goods for taxation purposes, allowing depreciation charges as tax deductions.
Major benefits of asset finance are: - Interest payments and depreciation generally should be tax deductible. Again, check with your accountant.
- Repayments can be structured to suit your cashflow.
- You have the option to include a deposit to help reduce interest charges.
Equipment rental
To keep pace with the latest developments without tying up capital you can rent business equipment with an equipment rental plan which will ensure you're always up to date and not using obsolete plant, or equipment.
The main benefits of this are: - Option to upgrade equipment or add new components to your plan mid term (subject to approval).
- Option to re-finance or upgrade at the end of the rental term (subject to approval).
- You can make an offer to purchase your equipment (at fair market value) or return the goods at the end of the term.
- No residual ownership obligation.
- Funding does not appear on your balance sheet.
- Full rental payment may be fully tax deductible. Check with your accountant.
Westpac Loans and Leasing
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