If you’re a small business owner who’s trying to find money to pay for new business equipment and assets, then you’re probably doing it tough right now.
The credit crunch has had a dramatic impact on the ability of small businesses to raise affordable funds. In the past 18 months banks have upped their lending criteria – along with the fees and interest they charge to successful applicants.
At the same time, the Government has announced that it will withdraw its banking debt guarantee, a move which could make it harder for banks to raise wholesale funding and put further pressure on their ability to lend to smaller businesses.
According to many business customers, banks are actually uninterested in lending to SMEs, with some customers unable to even make an appointment to see a bank representative after repeated attempts.
Equipment Leasing – the other finance
Increasingly, instead of going cap-in-hand to their bank manager for a loan, small business owners are getting the help they need from leasing specialists. A commercial lease is a rental agreement, in which the leasing company purchases the asset, then rents it to the customer for an agreed period.
Leasing reduces the whole expense of buying new business assets into a monthly “cost of doing business” that lets businesses forecast and budget, so businesses can preserve their cash for operating or investment purposes. Plus, the lease payments can be tax deductible as long as the equipment is used for business and their accountant or tax adviser has given it the thumbs up.
Why aren’t more businesses leasing equipment?
In many cases businesses simply aren’t aware of the option. And some businesses simply prefer to own their equipment.
Like home ownership, owning business assets can be an emotional matter, and many businesses are simply more comfortable if they own something. Increasingly, though, small businesses are taking a more pragmatic approach and viewing their essential equipment as an ongoing commercial overhead.
That’s why leasing is so attractive, because instead of owning a depreciating asset, you’re paying for the use of a revenue generating piece of equipment, and those payments are often far less than loan repayments to a bank.
A warmer welcome
Given the credit squeeze that is affecting the SME sector, many small business owners are surprised at the kind of reception they get when they speak to a leasing specialist or a vendor finance supplier.
Even more refreshing is the simplicity of the application process. In the current environment bank loans can take weeks to process, but leasing arrangements can be finalised in a matter of days, depending on the complexity of the proposed solution.
So should the banks be worried? The simple answer is that the Australian market is big enough to accommodate a wide range of business finance options. So far, leasing has been underrepresented compared with mature overseas markets. Ultimately, it comes down to choice, and the more choices small businesses have to fund their growth, the better it will be for the SME sector and business in general.
Top 10 reasons to lease
# 1 Simple access to finance – leasing companies want your business and keep the paperwork to a minimum.
#2 Keeps cash flowing – Leasing avoids big cash payments and preserves your liquidity
#3 Ease of budgeting – Lease payments are fixed, so you can budget and plan with certainty
#4 Avoid depreciation – Leasing and equipment finance is an operating expense with no depreciation to account for or track
#5 Bundle your solution – Bundle all your equipment, accessories and installation into an equipment lease or asset finance agreement
#6 Be more productive – The extra productivity the new equipment brings will help pay for the lease costs.
#7 Avoid obsolescence – Lease assets and equipment over their productive life then upgrade at the end of term to new and better equipment
#8 Evolve with your lease – As business needs evolve, you can add on equipment at any stage of the lease term and include it all in one monthly payment.
#9 Tax benefits – Leasing is a fully deductible operating expense for tax purposes for a business. Ask your accountant or tax adviser for advice.
#10 Flexibility – At the end of an agreement you can choose to upgrade the equipment, extend the lease, make an offer to purchase or return the equipment
Anthony Roberts is Head of FlexiCommercial and Vendor Finance, a division of FlexiGroup Limited.
