Buying the latest business equipment is a necessary evil if you want your business to stay ahead, right? Maybe not. Here are the key reasons SMBs should consider leasing equipment.
SMBs are the lifeblood of the Australian business community. They account for 73 percent of all businesses and employ 42 percent of local workers, making them a powerful force in the Australian economy. However, many SMBs face a serious challenge when it comes to growing their businesses – the issue of funding.
The ability to acquire new equipment provides SMBs with a major competitive advantage, enabling them to increase overall productivity, expand their customer base and stay up-to-date with the latest technology and innovations. However, the key issue that SMBs face is that purchasing equipment outright can be an expensive investment, creating a direct impact on an organisation’s cashflow and ability to meet other financial obligations.
With increasing interest rates and an uncertain economic outlook in Europe and the US, the major banks locally are tightening their lending policies, making it harder than ever for SMBs to acquire financing. While the major banks do provide equipment financing for SMBs, it is generally a ‘one size fits all’ approach to lending. For some SMBs, securing the right finance can be a challenge, especially if the finance agreement offered by the bank does not properly match the business’ needs either now or in the future, as the business evolves and grows.
Investing for growth
In order to develop their businesses and gain competitive advantage, SMBs need to continually invest in equipment and technology that improves productivity. SMBs may need to invest in industry specific equipment to remain competitive and retain business. For example, medical practices need to invest in diagnostic and imagining equipment while mining organisations need support equipment including compressors, welding equipment and safety systems. Whatever the industry, modern equipment can make a huge impact in boosting productivity and improving business efficiencies.
Additionally, they may need to upgrade industry specific resources like legal libraries and accounting packages or refit offices to maintain modern and professional work environments. Investment in office infrastructure including IT, telephony and mobility solutions can streamline the running of the business. Modern office spaces and reception areas reflect innovative thinking, creating a professional image for SMBs. Often traditional lenders will not provide financing for these business requirements.
Investment in these resources can seriously impact cashflow. New equipment is not only expensive but it also depreciates quickly as new innovations hit the market. It is also worth noting that the purchase of equipment or resources equates to paying for the future use and benefits upfront, which is not always the best solution for the SMB community.
Leasing versus outright purchase
Business equipment that is purchased outright becomes an asset and the business gains ownership of it. However, this is only an advantage if the equipment has a very long, useful life and is not likely to be technically superseded a few years later. Unfortunately, most business equipment is likely to be outdated as new technologies develop. One option here would be to sell the older product and reinvest funds in new resources. However, it is worth noting that equipment depreciates quickly, leaving the business with less to reinvest.
Buying the latest business equipment is a necessary evil if you want your business to stay ahead, right? Maybe not. Here are the key reasons SMBs should consider leasing equipment.
The benefits of leasing
There is another option for SMBs who want the flexibility to acquire the latest technology and equipment whenever there is a need – leasing. The key advantage of leasing business equipment is that it enables new assets to be acquired easily with minimal initial outlay of funds. Therefore, new equipment can be obtained without impact on an organisation’s cashflow.
Having a flexible finance facility also allows businesses to spread payments over the useful life of the equipment. This is a bonus when managing cashflow and leaves the business with capital to invest into other areas of the practice. Additionally, finance facilities are often tax friendly with monthly payments 100 percent tax-deductable if used for business purposes – making them a cost efficient way to access new equipment.
Just as important is what happens when the equipment comes to the end of its useful life. SMBs need the flexibility to upgrade or replace resources at any time, ensuring that they are not left with obsolete equipment. A flexible finance facility enables businesses to easily upgrade to new, advanced equipment as needed. This way, business owners can invest for growth – ensuring that they have the option to access the market leading resources that will enable them to develop and grow their businesses.
When it comes to putting in place flexible finance facilities, SMBs should look to work with organisations who specialise in financing business equipment including IT, telephone and business hardware and software requirements. Unlike traditional lenders, these organisations are able to offer specific, tailored solutions designed to secure the equipment required for growth, making them tax effective, cashflow friendly and flexible. The Leasing Centre believes every finance strategy should be specifically designed to help bridge the gap between growth objectives and budget limitations, to ensure that SMBs get the best investment for their business.
Key reasons why SMBs should consider leasing equipment
- Leasing preserves cashflow: Businesses are not required to find capital or outlay large sums of money upfront when acquiring equipment.
- Affordable payment plan: Fixed, affordable payments over a period of time reduce the impact on cashflow, freeing up funds for investment in other areas of the business.
- Increased flexibility: Upgrading equipment during the life of the equipment is simple. Businesses will benefit from the flexibility that upgrading offers as they are able to replace equipment during or at the end of a leasing agreement.
- Maintain competitive advantage: The ability to upgrade equipment at any point in time keeps the organisation at the forefront of current technology.
- Significant return on investment: Leasing offers the advantage of a faster return on investment. A manageable payment plan determined in advance helps businesses align cashflow with the cost benefits of the equipment.
–Nick Aronson is General Manager, The Leasing Centre.
