Equipment leasing can be an effective way to access expensive items that your business needs to flourish. Leasing is essentially a method of renting an asset for a period of time, its not permanent, and it can help many businesses get to the next level.
There are two types of equipment leasing:
The two main types of equipment leasing are known as Finance Leases and Operating Leases. Between these two forms of leasing, along with Hire Purchase, there are many different ways to get new or used equipment for your business.
It is important to bear in mind that many lenders will have different names and subtypes of equipment leasing – so not all points stated on this page apply to every type of equipment lease, this page applies to finance leases and operating leases.
Benefits Of Equipment Leasing
- You can lease almost anything – Business owners are aften surprised by the sheer variety of equipment obtainable on a lease. Most catering equipment in restaurants and hotels is on a finance lease, as are many pieces of high specification plant machinery. Chances are, the gaming machine in your local pub is held on lease too. Office fixtures and furniture, printing equipment, large coffee machines, commercial vehicles – it’s almost limitless what lenders will offer leasing finance on. As well as being a fantastic way to access expensive equipment, leasing can also be useful for subcontractors with a series of short term projects lined up, who want to rent a piece of equipment for a set period of time.
- Immediate access to equipment – Rather than having to wait for adequate savings or the profit to roll in, leasing equipment means it can arrive at your door within days. You can also get a much higher standard of equipment than you might otherwise be able to afford if you purchased it outright.
- Get your budget under control – Leasing is good for future budgeting, because you can make fixed monthly payments, and sometimes negotiate that are fixed to your income. If you know what’s going out of your business in the future it will help you manage your cash flow, which is crucial for success!
- A lender for every kind of equipment – Lenders usually specialise in different forms of leasing, such as finance leasing, lease rental, contract hire and operating leases – and they are all slightly different. It can depend on the equipment being loaned out (e.g. hard assets such as plant machinery, and soft assets like office equipment), and what you decide to do at the end of the lease agreement. For example, a finance lease means you wont own the equipment at the end of the period, and you’ll choose to return it or continue the lease.
- Leasing and repairs – Certain types business equipment lease come with easy maintenance, the finance company will pay for repairs and spare parts for the equipment. The finance company has incentive to provide this, because you agree the equipment value at the end of the agreement.
- Free up other finance options – Particularly true for longer-term leases, it may add up and be more expensive than buying the equipment outright, so its important to bear this in mind. However, since the finance is secured on the asset. Its not like a traditional Business Loan, so you might still be able to borrow money for other business purpose.
- Easy to upgrade – There are different options to suit different businesses. Some businesses choose to return their equipment back to the supplier at the end of the lease agreement, after the equipment has served its purpose. Others may choose to purchase it outright at the end of the period, or upgrade to an updated version.
- Not a fixed asset – Generally when you lease a piece of kit, you don’t own the title of the asset, and therefore it wont go on your balance sheet. This can be both a good or bad thing, depending on your situation. Its positive because it can be tax efficient, but it might be a negative if you don’t have any fixed assets in the business, because this wont support your case for future business finance.
- Suitable for all firm sizes – Equipment leasing is an efficient way for new-start businesses to get hold of the tools they need. You may need to be VAT registered and, if your business is a start-up, you’ll need to provide a credible personal guarantee to the lender. Once you’re set up and the business if making suitable profits, you may then have the opportunity to own the asset after the lease period.