Buy server in full or use finance?

[Kerwin]

I need a server. I could afford to pay for the whole server using the cash I already have available, or I could get it on finance. The problem is that if I buy it outright, it might unnecessarily restrict me because it'll take away a lot of my capital in one go. On the other hand, if I pay for it using finance, I can probably pay the monthly bills from the profits I make from using the server, but I obviously need to pay interest on the loan. The question is, what is the best option to choose?

My personal credit score is probably OK, but this is a new private limited company so I don't know if the computer company would want me to guarantee the loan. I don't really have a problem with that.

I'm just wondering how people feel about borrowing reasonably large amounts of money when starting a company.

 

[KM-Tiger]

Where is this server to be located? Is rental an option?

 

[Kerwin]

Where is this server to be located? Is rental an option?

It will be colo hosted in a datacentre. I've been looking at renting dedicated servers as well. Still, none of them really have the specifications that I am after and if I want to get close to the specs that I want the monthly rental fee is higher than the finance deal for getting my own new server with the exact specs I want.

 

[John Toomey]

You don't need to borrow money for servers. I lease them and have 8 of them that I use for hosting websites, data management systems, content management systems, etc..

If you lease it you can always hand it back. You can also get a managed service where the company you lease does all of the updates. Another alternative is a cloud based solution where you pay as you go but you need to know what you're buying.

I hope this helps.

 

[Kerwin]

You don't need to borrow money for servers. I lease them and have 8 of them that I use for hosting websites, data management systems, content management systems, etc..

If you lease it you can always hand it back. You can also get a managed service where the company you lease does all of the updates. Another alternative is a cloud based solution where you pay as you go but you need to know what you're buying.

I hope this helps.

The problem with leasing servers is you are restricted to what the company you are leasing from has to offer in terms of specifications. I don't need managed services. I'm dead set on an AMD EPYC server for a high density virtual private server host and have found a company that offers exactly what I want.

Unless I have misunderstood what you mean by leasing them, I know I could rent a dedicated server, but that comes back to what specifications are available versus what I want again.

 

[Darren_Ssc]

I need a server. I could afford to pay for the whole server using the cash I already have available, or I could get it on finance. The problem is that if I buy it outright, it might unnecessarily restrict me because it'll take away a lot of my capital in one go. On the other hand, if I pay for it using finance, I can probably pay the monthly bills from the profits I make from using the server, but I obviously need to pay interest on the loan. The question is, what is the best option to choose?

Finance allows you to use your cash for other purposes that may yield a lot more than the interest you'd be paying. It also ensures you have money on hand for unforeseen circumstances.

You can borrow money 'personally' for next to nothing at the moment.

 

[John Toomey]

If you can't see the server spec you want, have you considered AWS or Microsoft where you only pay usage? What is it that you will be running, which requires a very high spec machine?

 

[Frank the Insurance guy]

Also worth considering what would happen if there was a problem with the server - how would this affect your business and how quickly would you be able to get a replacement server up and running?

As a new business you want to give client's confidence that you have a "plan B" if relying on a single server.

 

[Gordon - Commercial Finance]

What is the cost to buy?

 

[Kerwin]

If you can't see the server spec you want, have you considered AWS or Microsoft where you only pay usage? What is it that you will be running, which requires a very high spec machine?

I need to have a full server as I'll be using it for virtualisation. Anyway, I already use Linode for smaller things like this.

 

[Kerwin]

Also worth considering what would happen if there was a problem with the server - how would this affect your business and how quickly would you be able to get a replacement server up and running?

As a new business you want to give client's confidence that you have a "plan B" if relying on a single server.

I've just checked the finance calculator again on the companies website which would sell me the server and if I got it on finance I could afford two servers which would help with the problem of reliability.

 

[Kerwin]

What is the cost to buy?

About £3,000 ex VAT.

 

[Mark T Jones]

The term you are looking for is 'opportunity cost', and it is good rational thinking.

In reality only you can know whether your 'spare' cash can be better used elsewhere but it is wise not to starve yourself of liquidity. On the other hand, don't get lured into spending more than you need to just because it is available.

 

[Financial-Modeller]

I've just checked the finance calculator again on the companies website which would sell me the server and if I got it on finance I could afford two servers which would help with the problem of reliability.

...and might enable you to grow your business more quickly than with one server?

If so, that will inform your answer, but as @Mark T Jones rightly cautions, don't take two if you don't expect your customers to pay you for the extra relaibility and/or you don't expect to be able to sell the extra capacity afforded by both servers IYSWIM.

 

[mattk]

About £3,000 ex VAT.

Isn't this the dictionary definition of where you should be using an MVP?

Spending six grand on servers that can be rented for a fraction of that is exactly what you need to prove your idea has a market without large upfront outlay.

If your idea has traction, then use that cashflow to either buy servers or serve the borrowing costs.

 

[Kerwin]

Isn't this the dictionary definition of where you should be using an MVP?

I've got that bit planned out already. I'm going to have a two-month beta test phase with reduced prices and reasonably cheap rented dedicated servers to collect feedback and fix any bugs with my systems before I go live with the real deal. Also hopefully that'll give me some satisfied customers who can post reviews for me.

 

[gpietersz]

There are two advantages to renting servers over buying:

1. usually they own the server, and they will fix hardware issues at their cost
2. you can rent monthly which means you can cancel without a lot of notice and not be out of pocket for more than the rent.

 

[arnydnxluk]

I have always found renting to make more sense once you factor in the cost of spares, the cost of colo, the cost of shipping and the need to replace hardware every few years.

Have you factored in the cost of spares for RAID controllers, storage, PSU's and such?

 

[Kerwin]

There are two advantages to renting servers over buying:

1. usually they own the server, and they will fix hardware issues at their cost
2. you can rent monthly which means you can cancel without a lot of notice and not be out of pocket for more than the rent.

I have always found renting to make more sense once you factor in the cost of spares, the cost of colo, the cost of shipping and the need to replace hardware every few years.

Have you factored in the cost of spares for RAID controllers, storage, PSU's and such?

Thank you both for replying.

The primary reason I had for buying servers rather than renting was that I could get the exact specification that I required. I've spent a lot of time looking at dedicated server providers and have never quite found what I wanted. Some have been close but others have been quite a bit off the mark. It also seems harder to find AMD EPYC servers (not impossible just harder) which is what I want rather than Intel Xeon servers.

I'm redoing my numbers today to see if I can save some money so I can pay my accountants fees straight up so I'll look again into renting dedicated servers rather than buying my own.

 

[gpietersz]

@Kerwin why are you so keen on EPYC servers? I ask our of curiosity because for most things it does not really matter that much which you use.

 

[pcourtney]

we have 2 clients that have moved over to EPYC servers, mainly for data security reasons

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2nd Gen EPYC™ helps safeguard privacy and integrity by encrypting each virtual machine with one of up to 509 unique encryption keys known only to the processor. This aids in protecting confidentiality of your data even if a malicious virtual machine finds a way into your virtual machine’s memory, or a compromised hypervisor reaches into a guest virtual machine.