How to finance your IT using leasing
With IT equipment, at some point you will have the responsibility of updating it and there are plenty of businesses where having the latest equipment is essential to their operation. Cloud computing has added another option to the decision making and enables businesses to avoid large capital outlay when replacing older systems.
If the Cloud is not the right answer for a business then funding the capital investment in servers, workstations and software may be a necessity or simply a preference. The options are typically a bank loan, hire purchase or leasing. This blog concentrates on the latter and how it works.
Having decided upon the leasing route, it is important that the leasing agreement works in your best interest for the equipment you are acquiring and your business.
After all, the benefits are plentiful, with leasing offering almost 100% financing – freeing up valuable working capital that could be better used elsewhere rather than being tied up in a depreciating asset.
Here are a few tips to consider though:
Upgrades: If IT equipment breaks, gets lost or is stolen, it makes sense to replace it. But deciding whether to replace an older active device for a newer one can be a dilemma. Succumb to the temptation to upgrade too early and too often, and you can find yourself with technology that is only marginally different from the old version,
There is one thing for sure though, if you need to make use of new features that only new technology affords then it is most definitely worth looking to finance the purchase of such equipment through a lease agreement.
Towards the end of the term of your lease you will be able to simply give back the equipment to the company you leased it from and upgrade to a newer model, often without having to increase your monthly payments.
But remember, if your current equipment is subject of a finance/lease agreement, you can still upgrade it and not have to wait until the end of the agreement term. It is straightforward enough to take the outstanding debt and amalgamate this into a new lease agreement with your new equipment. This arrangement will settle in full your old finance agreement, when your new finance agreement commences.
This allows for regular upgrades without a huge capital outlay. This enables businesses to remain competitive and to streamline their technology with industry standards, as required.
Costs: You also have to factor in the costs involved. Initial costs of leasing are lower than buying the equipment outright. There is no deposit required but just an initial rental of one or three months depending on what is agreed with your funder. That is of course provided you are confident you have secured a good ‘deal’ with the IT Reseller concerned.
If you are in any doubt, don’t be afraid to ask the IT provider with a breakdown of their costs and for them to show how competitive their pricing is.
If you get it right, the direct financial benefits from effectively ‘renting’ IT equipment allows a company to avoid having to make a large capital expenditure.
In addition, and far from a moot point, the leased equipment is listed as an asset on the bank’s balance sheet which they reflect in their competitive rate they offer you, yet will have a minimal initial expenditure. This also enables you to claim the tax benefits of the asset being accounted for through your profit and loss.
Tax considerations: When you acquire IT equipment, you need to consider your potential tax implications and position. When you Lease IT equipment, you can fully deduct the entire amount of your lease payments from your taxable income, thus making the rentals 100% Tax Deductible.
When you Buy the equipment with a loan or with your own cash, you can :-
1. Deduct the amount that you pay in interest.
2. Claim Capital Allowances up to £250,000 each year until April 2015.
Buying IT Equipment with cash, ties up important Working Capital from your business which should more importantly be used elsewhere in your business.
It is always sensible to seek independent advice from an accountant or finance broker though; they will be able to advice on the exact tax deductions and benefits to be made.
There are plenty of leasing providers including some of the hardware and software vendors, and making sure that you understand the real cost of the lease and the inherent interest charge is very important.
For more information about leasing your next capital investment contact Maria West on 01268 494101 or email email@example.com