Leases Asset Finance lending

Leasing during times of economic volatility

By Carolyn Monk Mar 24, 2020 5:34:05 PM

With the volatility created by the COVID-19 pandemic, all businesses are focused on supporting the health and wellbeing of their staff, maintaining stability, and keeping their business financially viable to work through this period of uncertainty.

Many businesses are beginning to consider ways that they can navigate through these precarious times. History has proven that the best organisations consider, learn and adapt quickly to challenges. An Ernst and Young report on the effects of the COVID-19 pandemic on the debt market maintains that companies that make quick and decisive actions based on risk analysis now will sure-up funding and liquidity positions. This will help businesses establish the foundations they need now to continue growing after this period of uncertainty passes.

In the past week, Quadrent has received an increased level of enquiry from organisations considering leasing options to acquire equipment instead of paying for this equipment in cash as originally planned. With this in mind, this article addresses why leasing is an effective option to ensure you have the right business assets while maintaining steady cash flow during these uncertain times.

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Here are four immediate benefits of leasing during times of economic uncertainty:

1. Preserving and building cash reserves during a crisis is critical

Businesses should always prudently manage working capital, but this is especially important now that liquidity is variable.

EY’s report provides assurance that while debt price increases may be on the horizon, the current state of the lending market appears to be in good shape and well supported by the Reserve Bank of Australia (RBA). With interest rates at record low levels, businesses should consider alternative funding quickly to secure as much cash as possible from existing or new sources.

Leasing equipment allows businesses to retain cash and preserve credit lines with their banks to ensure salaries for staff and core business expenses are met. Quadrent can also structure payments so that the first rental payment will not be payable until July, providing further cashflow relief.

Furthermore, our facilities do not require GSA’s or ALLPAPS registrations so that you can keep your existing banking facilities for working capital and strategic initiatives.

2. Use leasing to release locked up capital 

Quadrent can offer help with the release of locked-up capital. This is achieved by selling specific business-owned equipment to Quadrent, who then makes a cash injection to your business and leases the same equipment back to you. This, in turn, matches the cashflows with the remaining useful life of the asset and frees up cash immediately. In addition, the value that Quadrent can extract from the assets at end of the term is factored into your lease pricing upfront by way of Quadrent's residual investment.

3. Leasing is more cost-effective

In many instances, leasing is cheaper than owning an asset as it offers cash flow savings on a monthly or quarterly basis compared to purchasing outright. Smart businesses understand the importance of aligning cash flow with income generated, and leasing avoids large upfront cash payments.

Furthermore, and depending on the asset type, Quadrent will make an investment in the goods being acquired, which will result in a lower interest rate than your typical debt rate due to Quadrent’s investment (as the asset risk at the end of the term passes to the lessor).

4. Leasing guards against obsolescence and offers flexibility to respond to uncertainty

In these uncertain times, your business may need to quickly acquire equipment for use on a short-term basis. For example, supporting work from home or business continuity plans requires access to the best technology and infrastructure solutions to ride out the instability and be better positioned to ramp up business efficiency and productivity.

Quadrent proactively works with our clients throughout the equipment lifecycle and helps them choose the best assets for their unique circumstances, at any given point in time. Within our leases are transparent options available at the end of the term, including owning equipment, handing back equipment at no charge, replacing or, in some cases like this current period of uncertainty, extending the lease for longer at discounted rates.

If your business is already thinking about acquiring equipment or needs advice on the most suitable options in the current climate, reach out to Quadrent to access funding options and comparisons, and we can work on a solution for you.

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* Any views or opinions provided regarding lease accounting treatment are given purely for guidance by Quadrent with the information given to them. For formal classification, an auditors opinion should be obtained