SME Financing
Cash, lease or hire purchase? Which financing method should you choose when seeking to invest in new technology or resources for your business?
A Cash purchase will almost always work out more expensive than a Lease or Commercial Hire Purchase option due to the immediate loss of funds. Financing also acts as a hedge because payments are fixed compared to the decreasing value of money during each year of the finance agreement.
Leasing benefits can be significant in comparison. A finance lease is an agreement with fixed payments over the term plus a Residual Value payable at the end, generally determined by the life of the equipment. If used to earn assessable income, lease payments are tax deductable.
Similar to leasing, the benefits of commercial hire purchase are in your favour. A CHP contract is an agreement with fixed payments over the term. However, ownership is “implied” from day one. The hirer claims interest and depreciation against income during the term of the agreement.