Business Library
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Lease equipment for your business |
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Leasing is a way of getting the use of vehicles, plant, and equipment such as computers and office fixtures, without paying the full cost at once. Operating leases are taken out where you will use the equipment for less than its full economic life, for example a car, photocopier, vending machine or kitchen equipment.
The leasing company, or lessor, takes the risk of the equipment becoming obsolete, and assumes responsibility for repairs, maintenance, and insurance. As the lessee, you are paying for this service so it is more expensive than a finance lease, where you lease the equipment for most of its economic life and maintain and insure it yourself. Leases can normally be extended, often for fairly nominal sums, in the latter years. The main attractions of leasing are as follows:
- Using leasing finance for fixed assets leaves the rest of your capital free for other expenses, such as advertising, leaflet production, market research or wages
- The cost of a leased asset is known from the start, making forward planning more simple
- There may even be some tax advantages over other forms of finance as the whole of the cost of the lease is an allowable expense for tax purposes. If you purchase outright, only a portion
- of the cost is allowable in each year
- You don't need to provide any additional security over and above the asset being leased
- The paperwork and procedures to get a lease are simple and inexpensive. You do not, for example, need a business plan as you would for many other forms of finance
- The whole process is very quick. Once the leasing company has the information that is needed, which can usually be dealt with over the telephone, no more than 24 hours is needed to put the finance in place
- Basically anything can be financed as long as it identifiable, durable and removable
The lease will usually be for a specified time period, however, many leasing companies are flexible and open to negotiations. At the end of the contract period, the equipment or vehicle will have a residual value. Either the leasing company or a third party will take the risk that the asset will not be worth the residual value calculated at the beginning of the contract. If your contract specified lease-purchase, then you will own the product at the end of the leasing period, otherwise it reverts back to the leasing company.
Leasing companies have their own association, which can provide details of suitable firms for the type of asset you are considering leasing. Contact the Finance and Leasing Association to find a company in your area.
Action Checklist:
- Review your likely fixed asset purchases over the next year
- Contact at least three leasing companies and get their terms of trade
- Compare these with any other acceptable source of funds
This is a guide. It may be helpful for you to speak to an advisor in leasing and asset finance. E&OE