Renting is becoming more popular due to the financial benefits. Many organisations resist the temptation due to the traditional (sometimes-sentimental) methods they have used for many
years.
| LEASE (Finance Lease) |
RENTAL (Operating Lease) |
| 1. Term Contract |
1. Term Contract |
| 2. Agreed Monthly Payments |
2. Agreed Monthly Payments |
| 3. Residual Liability |
3. No Residual Liability |
| Due to 3 |
Due to 3 |
| 4. Must be accounted for on the Balance Sheet as a
Capital Item |
4. Off Balance Sheet and treated as an
Operating Expense
4a. Treated as an Expense in the Income Statementwith all the tax benefits that apply |
| 5. Capital Expenditure approval is required |
5. No Capital Expenditure is required |
|
AT THE END OF THE CONTRACT
|
| Residual Value must be paid out and title of goods passes to lessee |
A. You can hand goods back to the lender |
| |
B. You can upgrade your equipment under a new rental programme |
| |
C. You can negotiate continuation of the rental programme |
| |
D. You can negotiate to purchase the goods at a fair market price |
|
REASONS WHY COMPANIES RENT |
| 1. 100% Funding - No initial costs |
| 2. Conserves Capital, rental will not commit your precious capital to non-core business purchases, conserves company liquidity |
| 3. Ability to upgrade or add equipment during the contract term, company can remain progressive |
| 4. Flexibility - Able to structure payments to suit budget and cash flow, single monthly payment reduces administrative costs and saves time |
| 5. Does not appear on the Balance Sheet, preserves Balance Sheet ratios |
| 6. Equipment can be funded from Maintenance/Operating Budgets rather than Capital Budgets |
| 7. Favourable tax advantages |
| 8. Establishes an orderly replacement cycle, upgrade to the latest technology on a regular basis |
