Leasing (renting) is a good option for businesses that need equipment for short periods of time.
What Is An Operating Lease?
When Is Leasing A Good Option?
What Are The Benefits Of Leasing?
When Is Hire Purchase A Better Option?
How Does A Lease Or Hire Purchase Affect My Taxes?
What Is An Operating Lease?
- An operating lease is a rental agreement. Usually it refers to the rental of an asset or equipment over a short period of time.
- At the end of the lease, you return the asset or equipment to the leasing company.
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When Is Leasing A Good Option?
- Leasing is a good option for businesses that need equipment for short periods of time.
- For instance, you may require a special machine for a project. After the project, you will have no need for the machine.
- In such cases, it would be more cost effective to lease the machine for the duration of the project instead of purchasing it.
- Increasingly, many small businesses are beginning to lease computers, photocopiers and fax machines.
- Not only does it help to reduce the upfront cash needed to purchase these items, but it also shifts the responsibility and cost of maintenance and servicing to the supplier.
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What Are The Benefits Of Leasing?
- You do not need large sums of cash to acquire equipment you need for only short periods.
- The rental you pay is fixed, making it easier to draw up a budget and project your cash flow.
- By leasing, the responsibility of maintaining and servicing the equipment falls on the person renting the equipment to you.
- You can always rent the latest and most advanced equipment or assets as and when you need them.
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When Is Hire Purchase A Better Option?
- Hire purchase is a better option when you need to use the equipment or asset frequently e.g. delivery vans.
- Hire purchase allows you to eventually own the equipment as opposed to purely renting the equipment.
- In leasing, you can only rent the item if it is available. If your business depends on an equipment or asset, you cannot afford to lease.
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How Does A Lease Or Hire Purchase Affect My Taxes?
- When you lease, the costs of rental can be treated as business expenses.
- When you take up a hire purchase, you are effectively purchasing the asset. It is treated as a capital expenditure.
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