Asset Purchase vs Asset Lease – Which Option Is Better?

Posted by Emma Robison on Dec 22, 2018 3:47:00 PM
Emma Robison
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Asset Purchase vs Asset Lease – Which Option Is Better

There are several factors to consider when acquiring an asset for your business. On the one hand, purchasing outright adds value to the balance sheet while leasing can often further ease cash flow pressure.

Asset finance has grown in popularity in the face of tighter lending policies by banks to SMEs. Credit restrictions have spawned an explosion in alternative finance service providers, who know that offering flexible and competitive funding options attracts business customers.

When Outright Purchase Makes Sense

A business may find that outright ownership delivers more benefits than leasing under certain circumstances where any or all of these conditions exist:

  • Where capital is freely available and the purchase will not have any adverse knock-on effects on investment in other areas
  • When you are able to use Capital Allowances in your Tax Computations.
  • Where the asset is envisaged to have a long and productive life and will not quickly be overtaken by newer technology, which could lead to an erosion of competitiveness
  • Where there is clear benefit from immediate ownership

Why Choose Leasing?

Leasing involves entering into an agreement to use an asset for a fixed period in exchange for regular payments. The asset is handed back to the lessor at the end of the lease period.

There are several major benefits that asset leasing delivers over outright purchase:

  • Capital outlay is avoided, thus leaving funds free to be used for growing other areas of the business
  • Leasing gives businesses access to equipment that they might not otherwise be able to afford
  • You pay VAT on the monthly repayments and not on the total capital outlay of the asset
  • Newer models can be leased at the end of the agreed term enabling the business to continuously take advantage of newer technology
  • There may be Tax benefits with the accounting treatment.
  • Maintaining the asset in good working condition may be the responsibility of the leesor
  • Many leasing agreements provide for change mid-term, providing great flexibility

How To Go About Obtaining The Best Leasing Deal

Leasing providers tend to specialise in specific industries. That means they better placed to understand what applications a particular asset can be used for and the benefits it will bring the business. They are frequently competent to offer advice regarding choice of asset and can draw upon case studies from clients similar to the applicant’s business.

Finance brokers such as Business Finance Solutions Ltd are familiar with the service providers in the alternative finance markets. That means we can identify which providers are best suited to obtaining funding for your business. Matching with a leasing provider that understands your business means your application is likely to be treated sympathetically with a greater chance of success. Contact us today to find out more.

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Topics: Asset Finance

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