As­set fi­nance

Central Otago Mirror - - FRONT PAGE -

As­set fi­nance suit­able for your com­pany? Although the process of us­ing as­set fi­nance is usu­ally ben­e­fi­cial to a com­pany there are some points to con­sider. As with all fi­nan­cial con­tracts you should make sure that you are fully in­formed be­fore mak­ing a com­mit­ment. There can be some neg­a­tive as­pects to as­set fi­nance, but de­pend­ing on your com­pany and it’s cur­rent sit­u­a­tion they may be in­signif­i­cant when com­pared to the pos­i­tive as­pects.

Mak­ing use of as­set fi­nance al­lows you to keep your firm’s bor­row­ing op­tions open. An op­er­at­ing lease is classed as an ex­pense rather than a debt so it does not ef­fect your credit rat­ing.

Small, reg­u­lar lease pay­ments free up your cash flow. This en­ables your firm to adapt more eas­ily to chang­ing busi­ness con­di­tions.

Pay­ing a fixed monthly amount over a de­fined pe­riod of time makes for more straight for­ward bud­get man­age­ment.

Lease pay­ments are de­fined as ex­penses which means that un­taxed money can be used.

Some leases can be ar­ranged to in­clude spe­cific ben­e­fits such as equip­ment ser­vic­ing or the abil­ity to make vari­able monthly pay­ments.

As­set fi­nance con­tracts are usu­ally ar­ranged over a fixed term. In some cases it will not be pos­si­ble to end the con­tract pre­ma­turely and if it is then it will usu­ally be an ex­pen­sive op­tion.

You will find that most as­set fi­nance agree­ments come with a fixed rate of in­ter­est. This can be costly if in­ter­est rates fall sharply. How­ever rates could move in your favour so this can be a ben­e­fit in cer­tain cir­cum­stances.

The to­tal cost of re­pay­ments on as­set fi­nance are al­most al­ways greater than the cost of buy­ing the as­set out­right. You should re­mem­ber to in­clude the tax ben­e­fits when com­par­ing the two costs.

The lessor of an as­set may re­quire ad­di­tional se­cu­rity de­pend­ing on the fi­nan­cial stand­ing of your firm. This could ef­fect your com­pany’s credit rat­ing.

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