Why financing equipment is a greener option

September 15, 2016

Australia is lagging behind on energy efficiency compared to its international counterparts, leading to higher business costs and growing emissions. According to the 2016 International Energy Efficiency Scorecard, Australia ranked only slightly higher overall than Indonesia and Russia, scoring particularly badly in transportation and industrial energy efficiency.

With demand for energy efficient options on the rise and many corporates strapped for cash, a capital solution that leaves equity and senior debt untouched can assist Australian businesses to deliver a greener workplace.

Improved affordability

The cost of research into new energy efficient technologies, and the expense of environmentally friendly materials, can leave green equipment as some of the most expensive within its asset class. This higher price tag often forces businesses to compromise by buying environmentally inferior assets.

Yet by spreading that cost over a number of years, financing makes “buying green” more affordable without disrupting cash flow. In addition, the user benefits from a smaller energy bill and improved environmental record.

In Europe, asset finance is funding equipment such as wind turbines, energy efficient lighting, water heating systems and solar panels, helping the continent produce cleaner and more sustainable energy, according to recent research from Leaseurope. Closer to home, both the Australian and New Zealand governments are helping businesses to seek funding for energy efficient equipment and projects, as well as offering tax incentives to encourage more companies to do so.

Asset recycling

The ongoing, rapid pace of technological change is causing equipment is becoming obsolete faster than ever before. The result is rising global stockpiles of e-waste and stockrooms full of valuable materials collecting dust.

Finance options, including an operating lease or rental, allow the lessor to determine the most efficient utilisation of the asset at the end of the term because ownership is not transferred to the company using the equipment.

The lessor may determine the asset is appropriate for sale, re-leasing, or alternatively that it’s suitable for recycling. Regardless of the scenario, waste is minimised and assets are managed more efficiently than otherwise might be possible.

Other options such as a finance lease or hire purchase, where ownership transfers to the lessee, also facilitate environmentally efficient asset utilisation. As the new owner’s cash flow is not burdened by a single large outlay, the business can afford to recycle rather than abandon the asset.

Disposing of assets in an eco-friendly manner, particularly electronics or heavy machinery, can be a time consuming and arduous task for businesses. These time and cost constraints often prevent businesses from finding the right disposal option, again increasing wastage and limiting recycling initiatives.

In contrast, B2B lenders are typically aware of appropriate disposal options, whether it involves returning the equipment back to the manufacturer for repurpose or ethically disposing of it.

Energy efficiency is often the lowest-cost means of meeting new demand for energy, as well as reducing costs and pollution, according to the Energy Efficiency Council. By taking advantage of the latest technology available from financing, Australian businesses can help ensure the nation starts moving up the global rankings – while delivering a boost to the bottom line in the process.

Do you want to reduce your carbon footprint? Contact us for greener asset finance options.

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