For certain business sectors, there will be a huge reliance on IT in order to be successful. With that in mind, business owners have three options to consider when it comes to financing that IT equipment: purchasing, leasing or a bank loan. Each option has its own pros and cons so in this blog post, we are going to compare the three in order to help you make the right decision for your business.
Before we delve into the pros and cons though, there are some other things you need to think about first. The big one is budget. No matter how you decide to finance your IT equipment, you need to have an overall budget in mind. This will not only help ensure it’s affordable but it will also prevent you over spending where you don’t need to. The second thing to consider is time. How much time will your IT equipment last for, before it needs replacing? This is important because equipment with a shorter life span or more regular upgrades could be better suited to a lease agreement, while core IT infrastructure
and equipment that is less likely to change or upgrade over time could be better as business asset, purchased outright.
Bearing those two things in mind then, here are the pros and cons of our three finance options:
If you purchase your IT equipment outright then you can list that equipment as a business asset. It will also give you the security of knowing the equipment is yours and when cashflow slows down, your equipment is not at risk.
However, you will need to find the money to pay for the equipment upfront and depending on your business and the IT equipment you need, that could be a considerable sum of money. You will also then have to budget for and fund the ongoing maintenance for the equipment you buy and should it become outdated or worse still actually break, then you’ll also have to fund a replacement.
Due to the cost of IT equipment and the need to pay for it all in one go if you choose to buy it outright, you may also need to compromise on the specification or quality of the equipment in order to keep to your budget and that could have long term repercussions.
Funding through a bank loan
Securing a bank loan can be a compromise between leasing and purchasing out right. With a bank loan you can pay for the equipment you need outright so it still counts as a business asset and if you are lucky, the bank could loan you sufficient funds to secure the specification of equipment you really need.
The downside is, virtually all loans come with interest charges, so in the long run, you’ll actually end up spending more than the total cost of the IT equipment. On top of that, just like with purchasing the equipment outright, you’ll still need to pay for ongoing maintenance, upgrades and replacements.
When it comes to leasing your IT equipment, the primary advantage is that you avoid any upfront costs altogether, instead leasing the equipment over time, in many cases under an interest free agreement. As you won’t need to find large sums of money for purchasing your IT equipment, you can actually preserve that working capital so you can spend it elsewhere, such as business development (ideal for start-ups).
The other key advantage of leasing your IT equipment is that you don’t need to worry about ongoing maintenance and in three or four-years’ time when your equipment is ready to be upgraded you can easily do a complete refresh of your IT and simply revise your lease agreement to cover it.
On the downside, leased equipment cannot be listed as a business asset and you will need to keep on top of your monthly payments in order to keep your leased IT equipment, so good cashflow is essential.
And there you have it, the pros and cons of bank loans, out-right purchasing and leasing. Are you ready to take the plunge and invest in your IT equipment? Visit our finance calculator
to work out how you could spread the cost of your next project.