A comparison to explain your best financial approach
Leasing vs Buying
Rental
May Escalate installments to suite client.
VAT payable monthly and is regarded as Input Vat and written off against any output Vat collected.
Interest calculated on cash price before VAT.
The full rental is 100% tax deductible monthly.
No Capex approval required.
Off-Balance Sheet. Operating expense in the income statement. No claiming of wear-and-tear allowances (depreciation).
Interest rate not disclosed.
Deposits are negotiable determining the size of the asset.
Does not affect ‘equity ratio’, ‘current ratio’ and ‘return on assets ratio’ on financial ratio analysis.
Option to upgrade equipment is available
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Financial Lease
Structured payments.
The full VAT portion is claimed from SARS upfront.
Interest is calculated on the cash price including VAT.
Depreciation is the only benefit that reduces the income tax payable. You cannot write off the payments as a tax deduction
Capex approval required for purchase of equipment.
Appears on the client’s financials as an asset. Client claims wear-and-tear allowances (depreciation) according to SARS tax tables.
Interest rate not disclosed but is available on request
Deposits are negotiable.
Affects ‘equity ratio’, ‘current ratio’ and ‘return on assets ratio’ on financial ratio analysis.
Existing deal must be settled prior to upgrade
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Cash
Capital outlay upfront reduces working capital.
The full VAT portion is claimed from SARS upfront
Interest is calculated on the cash price including VAT.
Wear and Tear is the only benefit that reduces the income tax payable.
Capex approval required for purchase of equipment.
Appears on the clients financials as an asset and the relevant depreciation must be provided for.
N/A
Capital outlay upfront.
Affects ‘equity ratio’, ‘current ratio’ and ‘return on assets ratio’ on financial ratio analysis.
N/A
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Why rent?
depreciates (lose value over time with use)
quickly become obsolete (Technological Developments)
viewed as non core assets that become expensive to maintain
form part of operations where the assets are linked to income generation.
Stay ahead of the competition
Technological developments are expanding at an exponential rate in the modern 22nd century. You benefit from using assets and equipment, not owning them and upgrading at any given time after the minimum lease period have expired. Having the latest technology and equipment is an important part of staying competitive, however capital investment in IT infrastructure is expensive to keep up all the time. Not to mention the cash flow strains. Storing the old equipment can be a pain as well however with asset rentals the equipment is allocated back to the owner
Renting enables you to enjoy full, uninterrupted use of the equipment and then to simply replace or upgrade it when the agreement comes to an end.
Since there is no large lump-sum required upfront, entering into a rental agreement for depreciating assets frees up capital that can be used for core business initiatives and investments.
It allows you to use the equipment you need today and spread the payments across the useful life of the asset.
Read the full benefits of asset finance
Maximise your purchasing power
Stretch your budget even further due to the rental period payment instead of the outright purchase