Whenever you require some kind of asset or business equipments for the smooth running of your business you have two options before you. Either you can make an outright purchase or you can hire purchase the required asset. It is up you to weigh up the benefits and disadvantages of both the options and then decide. If you have the required amount of money available with you then you may opt for the outright purchase of the asset. This will give you the complete ownership of the asset. However, the drawback of making an outright purchase is that you may have to face the cash flow problems. This option is best if you need to own the asset.
The Finance Company Purchases the Asset on Your Behalf:
On the contrary, when you choose the option of hire purchase or leasing the asset, you get the convenience of using it for a definite period against the regular payments. In other words, we can say that you only need to choose the asset required for the business and leave a rest of the job on the finance company you have chosen. It is now the responsibility of the finance company to buy that asset on your behalf and provide it to you for using it up to a fixed period. However, the onus of maintaining the asset is on you when you choose the option of hire purchase or leasing.
So, how to finance your asset? Make an outright purchase or go for hire purchase or leasing option? The answer depends on the availability of the capital and the cash flow. By choosing the option of leasing, you get the facility of paying the cost of the asset in regular installments. By paying smaller amounts after regular intervals, you can manage the cash flow of your company in a better way. However, keep it in mind that you end up in paying more amount of money as compared to an outright purchase because you also pay for the interest.
Moreover, when you lease the asset you never get the ownership of the asset except in the case when there is an option in the lease agreement that allows you to buy he asset at the end of the lease agreement. However, you get the facility of upgrading the business equipments without paying anything at the cost of newer models. You are also entitled to get the tax benefits when you choose leasing to finance your asset. Deduction of complete cost of the rental payments is allowed from the taxable income. In addition, the leasing company passes you the benefit of capital allowance it is getting on the lease agreements up to 5 years. You get this benefit in the form of reduced rental payments. …