Financing your business

Bank loan versus leasing assets

If you don’t have the cash for a much-needed piece of equipment, should you lease it for your business or is it better to buy it with a bank loan instead? We compare the two options.

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Comparing the options of leasing or a loan

If an item is necessary to your business, and you have the money available, then it will usually benefit you to buy it outright.

But if you don’t have the cash flow to purchase that important new piece of equipment, it’s a good idea to explore the options to arrive at the right decision for your business.

Read our guide on the benefits of buying and leasing equipment to learn more about why.

Reasons for leasing

Suppose you need a high-quality laser printer that costs $10,000. Obviously leasing suits the seller, because at the end of the leasing contract (e.g. three years), they can persuade you to lease another machine. If you don’t, you lose the use of the equipment – because with leasing, you never own anything. As long as you need the printer, your leasing payments will go on, year after year. 

So, why would you want to lease, when you never end up owning the asset? The argument for leasing is typically that you’ll always have the latest technology. It can be expensive to constantly upgrade your machinery and equipment, but in a leasing option, someone else shoulders the upfront cost.

Of course, it sounds attractive to be able to keep up with the latest technology. But before you turn to leasing, consider whether a bank loan for the equipment could be a good option for your business instead.

Lease to own

You could also check with the equipment dealer about a ‘lease to own’ option, where you do own the equipment at the end. Keep in mind you’ll probably end up paying a higher lease fee.

Reasons for a loan

A trade-in (or trade-up) for your printer sounds good. But the three-year-old machine does have some residual value. The leasing company will usually dispose of it on the second-hand market. Why should you not benefit from that residual value?

In addition, getting a brand-new machine every three years might sound enticing, but you might be able to get another few years of good service out of the equipment, particularly if you buy quality equipment in the first place. New technology often comes with training costs too, which you’ll need to factor into your budget.

In the case of the laser printer, you might reckon you could get six years of good service from the machine. After the third year, you pay nothing further (apart from maintenance costs). If you work out the amount you’ll save over that three to five-year period, the difference could end up being a tidy sum.

Finally, it pays to look at how much you’ll actually be spending. In our example, the dealer would provide a quote for the monthly costs of leasing the printer for three years. You’ll typically find there’s not much difference between the monthly payments of a bank loan versus leasing – except a loan will allow you to own the asset yourself, with all the benefits that brings.

An alternative to hire purchase

If you're considering the hire purchase option, speak to an ANZ Business Specialist about a suitably structured bank loan with an agreed repayment period.

The interest charges will work out significantly lower than commercial hire purchase rates the equipment dealer is likely to quote you. And remember, the interest you pay for business-use equipment is tax deductible.

Contact an ANZ Business Specialist

Our specialists understand your kind of business and the challenges you face as a business owner. We can help you figure out how to make your business grow and succeed.

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Important information

We’ve provided this material as a complimentary service. It is prepared based on information and sources ANZ believes to be reliable. ANZ cannot warrant its accuracy, completeness or suitability for your intended use. The content is information only, is subject to change, and isn’t a substitute for commercial judgement or professional advice, which you should seek before relying on it. To the extent the law allows, ANZ doesn’t accept any responsibility or liability for any direct or indirect loss or damage arising from any act or omissions by any person relying on this material.

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