We often speak with business owners who are not sure whether to purchase and asset through asset finance or hire it in. As a general rule of thumb, we often advise that it will be more beneficial to their business to purchase the asset if they expect utilisation above 25%. Therefore, if they think the asset will be in use for over 3 months of the year it will be worthwhile to purchase. Below are the key benefits to asset finance purchases rather than hire.
Ownership and Equity:
Financing assets allows the business to acquire ownership of the assets over time. As the finance is paid off, the business gains equity in the asset, which can be an important long-term benefit. Eventually, the asset will become a valuable part of the company’s balance sheet.
While hiring assets may seem easy and simple in the short term, it can become more expensive over the long term. Purchasing assets through asset finance can spread the cost over several years, making it more cost-efficient for the business in the long run.
In most circumstances, the interest and depreciation on financed assets will be tax-deductible, providing tax advantages for businesses.
Flexibility and Customisation:
When financing an asset, businesses often have more flexibility in customizing the asset according to their specific needs. This is especially relevant for assets that are essential to the core operations of the business.
Owning the asset gives the business more control over its usage and maintenance. When hiring an asset, the control lies with the hiring company, which might not align perfectly with the requirements and priorities of the business.
Build Credit History:
Regularly paying off asset finance deals can help build a positive credit history for the business, making it easier and cheaper to secure finance for future purchases or other finance requirements
Resale, Trade-in or Refinance Value:
As the business continues to service their asset finance agreement, there will be more and more equity held within the asset as described in Ownership and Equity. This will allow the business to realise that equity (cash) through a sale or trade in. Alternatively, the company will be able to refinance the asset to release cash into the business.