Finance

DRC offers you Investment options.

There are a number of acquisition options available from Renting, Lease to own
(Hire Purchase) or Cash purchase. You can even talk to us about using your Visa or MasterCard to make your investment.

THE VALUE OF RENTAL

Up-front purchase and traditional financing options can impact a business’s financial position in different ways.

Purchasing equipment requires outlaying substantial amounts of highly valuable cash reserves which may be better utilised invested in direct income generating assets, or investment in assets that appreciate rather than assets that depreciate quickly.

Cash reserves may also be used more effectively to reduce Bank or Finance Company secured debt facilities, which negatively impact a business’s Balance Sheet, and encumber properties and other fixed assets so that they can’t be utilised by the business without the consent of the financier as the secured party.

Traditional finance facilities are recorded on the Balance Sheet as debt, which may unnecessarily affect existing credit limits and tie up security that may be better utilised for other business purposes.

Rental, on the other hand, enables a business to acquire the use of the assets rented without the need for any upfront cash outlay or the need to provide an additional amount of security over other assets. Rental can be positioned as an operating expense and is off balance sheet so it does not impact on a business’s existing level of gearing.

Rental as a pay for use charge is flexible such that it can be structured to match a business’s unique cashflow circumstances e.g. match rental outflows to the seasonality of a business’s cash inflows.

Unlike credit providers who are primarily concerned with the assessment and management of a customer’s credit risk, true rental providers have a core competency of managing technology based asset risk.

Traditional financing methods also place the risk of equipment ownership solely on the business. With Rental the Rental Company carries the risk of ownership and accordingly is prepared to invest in that equipment by taking a residual position in that equipment. As a result, when rental payments are compared to payments made in respect of a traditional financing arrangement, they are usually lower and come with the flexibility to refresh or upgrade the equipment rented during the rental term.

SPECIFIC BENEFITS OF RENTAL

•    A simple "pay for use" structure i.e. convenient.
•    Potential for Off Balance Sheet classification (tax and accounting).
•    The ability to 'cash up' existing equipment using Sale and Rent back to enable the cash freed up by this exercise to be invested by the business in high return projects rather than leaving it tied up in depreciating equipment.
•    A competitive cost of funds compared to debt finance (enabled by residual investment in the equipment).
•    Removal of the need for any large capital outlay to acquire the equipment enabling that capital capacity to be redirected to areas of the business which provide the greatest return.
•    Removing exposure to equipment ownership risk.
•    Providing fixed known costs for budgeting purposes eliminating exposure to interest rate risk.
•    The ability to structure the rental payments (low to high, high to low) to match the payments with the cash flows of cyclical businesses or specific projects and shorten the project payback period.

SALE & RENT BACK

A Sale and Rent Back allows a business to sell to the Rental Company its existing technology-based assets and avoid any capital loss associated with the disposal of those assets. The sale price is generally determined to be the greater of the written down value or the market value of the equipment and is paid in cash by the Rental Company on settlement of the transaction. The equipment is then rented back over a pre-agreed rental term, with the term generally reflecting the remainder of the useful life of that equipment or until the next equipment replacement or upgrade programme is to be implemented.

The cost for the rental is based on the term (life remaining of the equipment acquired) and the agreed purchase price of the equipment.

WHAT HAPPENS AT THE END OF THE RENTAL TERM
End of term options include:

- Retain some or all of the equipment: keep equipment and continue to make rental payments on a casual short-term basis. This may be preferable if a business is either waiting to make a final decision on specific technology replacements, cyclical price reductions or for stock to arrive from your regular suppliers of choice.
- For equipment that may have a longer than initially expected useful life, client’s have the ability to re-negotiate a new extended term.
- Return and replace some or all equipment, upgrading to new technology.
- Return equipment with no penalty or residual payment.

Tax shield Advantages of renting vs. ownership.


•    Ownership puts the funding on the balance sheet. Renting takes it off.

•    Ownership ties up money available from the bank for future growth, change or expansion. Renting frees it up.


•    GST has to be found as part of the purchase price and then can be claimed back. With renting you claim the GST portion back each month.

•    Depreciation occurs over 10 years and there is less tax write off vs. renting:

Comparison of tax benefits

Capital Equipment priced at say $50,000 + GST

	Term	RENT	OWN	Advantages (Rent over Own)
Payment Year 1	3	$17,000	$56,250
Ave depreciation claimed per year for 10 years			$5,000
Tax shield per year @ 33 % (Tax claimed )		$6,000	$1,500	4 times
	5	$10,000
Ave depreciation claimed per year for 10 years			$5,000
Tax shield per year  @ 33 %		$3,300	$1,500	2 times
Tax shield Total benefits over 10 years		$60,000	$15,000	4 times

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