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Why should you read this guide?

There are many ways to obtain assets for your business. One of the many questions asked of a business finance company is whether it is better to lease or to buy the assets. The answer mostly starts with "it depends..." This guide will look at the options of leasing and buying and provide you with pros and cons of each.

Background

When looking to find an asset for your business your main focus is on finding the right one to do the job. When you think you have this sorted you are then faced with the problem on how to pay for it. One very quick point here – you should never look to buy expensive assets using your overdraft facility unless this is a temporary solution. The answer on how best to pay for an asset within your business does actually depend on your own circumstances. You need to consider your cash flow, your tax situation and what cash you have to put towards the asset amongst other things. If you have a close working relationship with your accountant then discuss each major purchase with them.

Leasing

Just to add to the complications there are many forms of leasing available to you. In the main leasing an asset means that you make a monthly payment towards it and you have full use of this asset if you keep up the payments but you will never own it.

Advantages

• You can obtain the asset immediately without worrying about spending a lot of capital
• There is rarely additional security needed allowing this to be used for other borrowing
• The full monthly lease payment is an allowable expense for tax
• You can usually upgrade the asset within the term of the lease if using the same company
• At the end of the term of the lease it is possible to continue to use the asset for a nominal annual payment (which is rarely collected)
• If you lease a vehicle you only pay for the amount that you use it as it will have a residual value when you hand it back.

Buying an asset