The great thing about owning a business is that everything is, albeit indirectly, yours. So when it comes to buying new IT kit, you can enjoy spending your own money on computing. I say enjoy, but budgeting is usually tight and not everyone can afford all the IT systems from which their business would benefit. There are options when paying for systems and not all of them involve taking the money out of the bank immediately.

Of course some of them do, and if you can afford to buy systems for which you've budgeted the actual cash, then go for it. Thanks to the last budget - and yes, there are some reasons for small business owners to be pleased with it - there is no tax disadvantage if you buy rather than lease or rent. There are, however, a number of options other than cash buying, specifically rental/leasing and outsourcing.

The tax advantages of leasing a system have been muddied by the chancellor's decision, in the last budget, to allow businesses to claim 100% tax relief on IT purchases. Some of the leasing companies spoken to for this article disputed whether there still weren't tax advantages to leasing, which logically there can't be. If extra tax relief is your objective in structuring major capital purchases it is as well to talk to an accountant first. What was agreed by all, however, was that tax savings weren't the most frequent reason for looking at leasing; simple affordability plays a significant part.

"Most of the customers we deal with are looking at budgeting and convenience," confirms Jon Openshaw, head of Sun Microsystems Finance in the UK. "The ability to roll up hardware, software and services into one transaction is important."

Well yes, but you can do that when you pay cash or with an equivalent like a credit card. What is less simple to establish at that stage is agreement on automatic upgrades, which are likely to be included in leasing agreements. The difficulty can be the flexibility involved in the agreements on offer. Options within options are cropping up, such as JBS's pay-as-you-go version of outsourcing; essentially they host the service and you pay for what you use. It is "about giving smaller companies access to applications that have previously been out of their reach, so that IT supports the business rather than becoming a burden on it," says Colin Boag, managing director of JBS.

It is not only the specialists who are thinking that way. IBM is more widely known as a manufacturer than a financier, but its global financing division is well aware of the particular needs of smaller traders. Paul Foulks, director of global financing for Europe, the Middle East and Africa, believes many businesses fall foul of the "one size fits all" approach taken by many finance companies.

"The first question a company needs to ask when researching its financing options is whether the financier offers tailored packages," he says. "It then needs to ask: am I looking to finance a commodity item worth less that £50,000 and require speed and simplicity; do I need to finance the purchase of a solution and would prefer to have an integrated package and contract; or, am I looking to make a large-scale IT investment and need to make flexible payments over a one to three-year period?"

A financial operation that understands the small and medium-sized business will come up with the goods, he suggests, whatever the needs. All of which is fine in theory, but something is holding the market back. The Smart Funding Report, research commissioned by Fujitsu Financial Services, confirms that firms understand the importance of IT investment but are not producing the cash needed to make their required installations happen.

Only 43% of businesses increased their IT spend in 2001-02, mostly citing margin constraints as the main reason. The irony is that the majority stated a preference for cash purchases, when this is the option that offers the least flexibility - you either have the money or you don't.

Sometimes it is not easy for companies that want to help set up financing schemes to do so because of regulatory issues. Speaking a couple of months ago, Microsoft confirmed its intention to set up a financial scheme in Europe to mirror the one it has launched in the US, and as soon as it is allowed to do so, it will. This is a new departure in the software industry. However, when considering the leasing option, it is important to remember that Siemens Financial Services won't insist you buy Siemens kit, and IBM Global Financing has options for people buying just about anything, whether it is IBM kit or not. Single-company options are also available; Kyocera Mita will help you lease a printer, while Dell, Unisys and others have rental and other options on their equipment. Smaller businesses preferring to keep manufacturers at arm's length will be able to approach people like PC World, which has recently set up an arrangement with Australian partner RentSmart.

A cynic might say that if they can find a way to sell you a single computer or extensive systems, they will whether you can afford it or not. In terms of upgrades, maintenance and liberating capital (which can be earning interest in the meantime), the leasing option should not be overlooked.

Further alternatives

For the majority of companies the three options - buying, leasing and pay as you go or outsourcing - will be the only means of buying IT equipment. For people working in socially deprived regions or areas of high unemployment, it can be worth contacting local Business Links to find out whether any grant funding or low-interest loans are available through the government. Extensive conversations with business advisers, however, suggest that the answer is usually a negative, followed by the inquirer saying: "Oh well, thought we might as well try it."

Pros and cons of buying your own at a glance

There are elements for and against each form of IT purchase. Anthony Harrison, senior consultant at the NCC Group, runs through them.

Buying

+ Straightforward if you have the cash
- Short-term affordability may take priority over long-term benefits
- Potential cash-flow difficulties or impact on profitability
- Investment is not spread out over the life of the assets
- Does not set up a long-term budget expectation that can be used for IT refresh
- Limited risk transfer to supplier

Leasing

+ Releases short-term cash restraints
+ Sets up long-term budget plan that can take into account IT refresh
- Can be expensive
- Creates the temptation to roll existing leases into one - an expensive commitment
- Limited risk transfer to supplier

Partnership/outsourcing

+ Provides access to capital
+ Can allow risks to be transferred to supplier
+ Can share rewards, eg from process efficiencies
+ Can be mutually beneficial to client and supplier
+ Can be wider than just IT
+ Can be based on outcomes rather than inputs
+ Sets up a long-term budget expectation that can be used for IT refresh
- Benefits may not be realised
- Exit and termination arrangements need to be thought through
- Service-level agreement must be in place
- Robust contract is needed
- Staff may need to transfer to supplier