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.
| DIFFERENCE BETWEEN LEASE AND RENTAL | |
| 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 Statement with 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 | |
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