Financing for Small-to-Medium-Enterprises - to rent or to buy?

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"A business cannot function without computers and a phone system for example," says Shane Merriman, MD of InnoVent Rental and Asset Management Solutions. "However, you do have a choice on how to acquire these items."

Acquiring assets

He says when it comes to acquiring all the assets needed to run a business, there are three basic choices - buying equipment outright, financing through your bank, or renting.

Merriman adds that "although buying equipment outright might appear at first to be the best option, SME's should carefully consider whether or not this is the best way to spend their working capital. It could well prove to be far more cost effective to rent."

He stresses that most equipment and technology has a short life span and will eventually become obsolete. Cost is not the only factor that needs to be taken into account. "Insurance, documentation, management of the assets, storage and disposal of redundant assets - all must be factored into the equation."

In his opinion, the negatives of purchasing outweigh the positives. "The full cost has to be paid upfront which can negatively impact on cash flow. Should you have taken out a loan to fund the purchase, you will also be hit with exorbitant interest charges. In addition, smaller businesses do not often enjoy the same discounts as their enterprise counterparts who place much larger orders."

Another major downside is the possibility of making an unwise choice and either ending up with equipment that does not do the job you intended it for, or you discover you don't actually need it. "Once you've bought a piece of equipment, you're stuck with it. This can be a real bugbear when newer, cheaper and better models are constantly being released.

"It is at this stage that small businesses often struggle with the storage for these redundant assets, coupled with the maintenance costs once they are out of warranty," Merriman adds. "Assets depreciate. You will never get your money back. This is where the benefits of renting far outweigh those of purchasing."

He cites more flexible payment options, reduced risk, predictable budgeting, reduced maintenance and repair, and better protection against device obsolescence as being the main benefits. "Renting helps you realise considerable savings compared to an outright purchase and removes the risk of needing to dispose of the asset before writing off its book value. In addition, it takes away headaches associated with trying to sell the equipment second hand."

Shop around

Merriman also cautions that when you do decide to rent, "shop around, don't go for the first offers you are quoted for, or the first prices you see. Compare what is out there to make sure you find the best deal. Look for a reputable company that offers a complete rental and asset lifecycle management solution- from initial deployment, to insurance and asset tracking, to replacement and disposal."

"Most people often don't consider what happens next after a purchase. Managing your assets during the course of their useful life is essential to the efficient running of a business, and a rental solution combined with a full asset management component takes the headache out of this element for companies, providing you with the opportunity to upgrade equipment and take full advantage of all the latest and greatest technology has to offer."