This is the question Aussie business owners should be asking when thinking about their next IT purchase
Interest rates in Australia are at a historical low and are looking to stay that way for the next 12 months as the RBA continues to exert downward pressure on the AUD against all other currencies. (RBA Cash rate at 2.5%, AUD at 0.88 USD at time of writing.)
After years of proactive deleveraging in corporate balance sheets post-GFC, mid 2013 could be seen as an inflexion point for corporate debt appetite. Corporate gearing (Book Debt-to-Equity) has increased slightly for listed companies by 5-6% to about 55% according to the RBA September ’13 Review, and business credit for Incorporated and Non-incorporated businesses has grown by a similar amount.
So given the available supply of cheap debt, and evident market demand for said debt, this begs the question; how does a business owner stand to benefit their company by putting their equipment under finance instead of capital expenditure?
“Barry”, owner of Odin Intelligence Pty Ltd*, a company with $600,000 of annual turnover is looking to make a $50,000 investment in a new IBM storage platform. $50,000 is a significant upfront cost that could be better spent on Marketing, Sales, Utilities, Wages, and the Espresso machine. $50,000 is money that does not need to be committed upfront on an asset that only generates a return over time.
What happens if Barry financed that equipment instead?
Assuming an average lending rate for a SMB on a 3 year fixed term unsecured loan is 8.69% p.a., a $50,000 upfront payment could become only $1,580.00 per month over 36 months. A monthly payment is much easier on Odin’s cash flow, but there is a better option available.
Rather than finance the hardware, Barry could take out a 3 year Risk Residual Lease and potentially pay as little as $1,410.00 every month over 36 months. He can then return the old system and upgrade to something better, keeping within the same monthly budget.
Barry’s decision to lease would allow Odin to keep up to date with the latest technology, while largely offsetting the cost of interest over 3 years.
Should Barry still insist on taking out a loan for the hardware rather than a lease, then he could take advantage of IBM’s 0% Financing Promotion on IBM hardware. With 0% Financing, Odin would only have to make 12 instalments of $4,166.66 and save $2,000 in cost of money alone.
So to answer the question of Cash or Credit, the choice should be Credit. Just mention IBM Global Financing to your Account Manager to arrange an indicative quote within 24 hours.
* Example Company Only
** Interest costs and payment streams are illustrative only, formal quotation may be provided by an IGF sales representative and subject to credit conditions.