The ins and outs of leasing business equipment
A lease could help you to afford the equipment you need for your business – especially if it’s tailored to your cash flow. NAB Asset Finance specialists Fiona McDowall and Rebecca Warren discuss your choices, potential benefits and the pitfalls to avoid.
If you don’t have ready cash, leasing can be a practical way of acquiring the computers, cars or capital equipment you need to run your business. If you do have cash, leasing can mean it stays in your business as a safety net or to use for other things. Leasing can be a more affordable way of keeping pace with fast-changing technology, and an independent accountant or tax adviser will be able to tell you if there are any impacts on tax and GST.
Tailored to cash flow
“Many businesses find leasing helpful because it smooths out your capital outlay over a period of time, most commonly three, four or five years,” says Fiona McDowall, Product Manager, Equipment Finance at NAB. “Predictable monthly repayments can give you better control of your cash flow and repayments can be tailored to your cash flow cycle. For example, if you have a seasonal business, NAB can structure your lease so you pay very little, or even nothing, in your quiet months and then make this up in your busier times.”
What kind of finance?
You will generally have three options to choose from.
Equipment Loan: you own the asset and the bank or finance provider uses the asset as security.
Finance lease: the finance provider owns the equipment and there are a number of end of term options in relation to the equipment.
Hire purchase: the finance provider owns the equipment until the end of the term when it becomes yours.
There’s also different ways to acquire the equipment you want to lease. For example, you could source the equipment yourself and ask a finance provider to purchase it on your behalf, or you could lease directly from a retailer, dealer or manufacturer.
“Before you lease from a dealer it’s a good idea to check the cash price elsewhere,” says
Rebecca Warren, General Manager- Equipment Finance at NAB. “Sometimes dealers offer a very low interest rate but offset that with a much higher purchase price. You could end up paying more than if you’d negotiated a good cash price somewhere else, so it pays to shop around.”
When you’re comparing finance providers, you need to be sure you’ve included all of the costs over the full term of the lease. “That includes things like a security deposit, insurance charges and additions,” says McDowall. “They’re not always obvious but you need to be sure you’re comparing the same things.”
5 tips for successful leasing
- Match the finance contract to the useful life of the equipment or how long you intend to use it, whichever is shorter. There’s no point taking out a five year lease on something you only intend to keep for three years.
- Choose repayments that are structured to work with your cash flow.
- When you’re comparing prices, make sure there are no hidden fees or charges and that you’re taking the whole cost into account.
- Always use a reputable finance provider.
- Ask your accountant or banker to help you identify the best option for your needs.