16 Oct 2017

The Big Question - To buy or to rent

2017-07-
 

Capital expenditure on equipment is one of the largest costs involved in setting up projects in any industry. It is often assumed that buying equipment is always more cost-effective than renting, however hidden costs in purchased equipment mean that that this is not always true.

Many companies choose to purchase generators when they require power for short-term situations such as powering a mining labour camp. However, the purchase of generators includes a host of added costs that are not immediately obvious. Spare parts for the equipment need to be purchased and stored, as well as consumable products such as oil. When generators are housed in different locations, logistical problems occur as companies attempt to ensure that equipment is regularly serviced and that spares and consumables are readily available for all project sites. Refueling is an additional cost which is often forgotten when the decision is made to buy equipment. In addition, a company purchasing generators must be prepared to hire and train specialized engineers in order to ensure that the machines are kept in good working order.

Free up capital expenditure

Another one of the major benefits of renting is that it avoids the need for large capital expenditure. When a company chooses to buy, they have to pay the full cost of the asset up front or pay a large down payment for the loan out of their operating funds, which can affect available lines of credit and also impact cash flow.  Moreover, if they choose to utilise a loan or overdraft to fund the purchase of an asset, it will add to the cost over the repayment period.

Renting frees up working capital for more profitable uses without increasing debt ratio. A company can place their capital in more profitable investments and increase their borrowing power with a better ratio of assets to liabilities because rented equipment is not a balance-sheet liability. In some cases, where a project requires equipment according to the revenue generated by that project, having a defined weekly or monthly cost arising from renting (without the need to dispose of an asset afterwards or having to arrange for project funding up front) can be highly attractive. Additionally, when buying equipment, it is not easy to spread the cost to coincide with money coming into the business.

Renting offers accurate cost control as the rental payments are fixed and guaranteed for the agreed term and are not subject to the prime interest rate increases. In many cases, the full amount for the equipment, the service, mobilising, demobilising, installation, operation and maintenance is included in the rental rate. This spreads out the cost evenly over the term of the rental.

Get to work quicker with a rental option

The decision between purchasing a power system or employing power rentals will depend largely upon the urgency of finding a solution to the power problem being faced and the length of time the power solution will be needed for. Renting allows for a quick response as the need for power arises. With minimal documentation, a company can quickly have the equipment they need in operation.

If the requirement is for a short to medium term, it is more economical to rent than to buy. In some cases renting can be the only option, such as in an emergency when there is an immediate need to cater for loss of primary power for example. In such cases, whether to buy or rent is not the question but how quickly power can be deployed to a site to resume operations is the only consideration.

Sustainability of projects is directly linked to the price at which the end product could be sold in the market. When prices of end products fall rendering projects unsustainable (until the price recovers above minimum desirable levels), the concept of renting large equipment such as power generation could be increasingly attractive as a way to limit capital expenditure, lower costs and mitigate risks.

Mitigate risk and stay up to date with latest technology

In choosing to rent instead of purchase, uncertainties and risks of equipment ownership are transferred to the rental service provider, which allows the customer to concentrate on using the rented equipment as a productive part of their business.

With rental, a company need not be concerned about having the latest equipment. The service provider will guarantee the availability by providing the most up-to-date and well maintained equipment. This allows the customer to concentrate on core business knowing they can rely on the service provider for guaranteed availability.

The purchase of equipment means it becomes obsolete as technology improves. Renting allows the acquisition of equipment that is needed today and the ability to use it cost effectively until it no longer meets the customer’s needs, and then upgrade without dealing with the outdated and obsolete. The customer has the freedom to change the equipment as and when their business needs change.

How we can help

We provide turn-key service, supplying rental power, cooling and heating packages at project sites all over the world. Our service offering comes complete with not only the equipment but supply chain, logistics, installation, operation and maintenance including the supply of spare parts, consumables and manpower to operate and maintain the plant as well as the fuel management if need be. With the ability to obtain fleet anywhere in the world via our worldwide network, we will be able to cater to your requirements no matter where you require our support from. With a unique 24/7 callout service, we are able to offer a timely and responsive service, whatever your need.