The prospect of avoiding interest and financing charges by paying cash is pretty attractive to some companies. But cash isn’t free. It’s a limited asset, and there may be better ways to use it than tying it up in a depreciating asset like IT. Because, face it, in 2 years your IT resources will be relatively small. The rate at which technology depreciates is incredible. Keeping cash at hand makes it much easier to seize a business opportunity before a competitor can arrange financing, or to weather a downturn that cripples your competition. By spending cash on IT, a business can also lose the tax advantages and residual value benefits provided by renting. The residual value is the amount that the person renting can expect to recover by selling the asset after the rental agreement ends. Ultimately, using cash to invest in your business provides returns that are far higher than the interest rate of a rental. It is very clear that renting is the best choice.
