Asset Leasing

Asset leasing gives businesses the option of borrowing an asset for a fixed period, rather than having to buy it outright. Because you do not need to pay for a new piece of equipment outright, leasing overcomes cash flow implications.

The fundamental characteristic of leasing is that the ownership never actually passes on to the customer. 

By having a leasing agreement contract a business is allowed to use equipment in exchange for regular payments. Finance lease and operating lease are the two accounting methods for leasing equipment and are used for different purposes.

Cashflow

It is kind to your cash flow. Because you pay a set amount each month, you do not need to fork out a large sum of money.

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Ownership

After the last instalment you have the option to own the equipment.

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How does it work?

Finance lease works by customers renting an asset for most of the item’s useful life. The customer takes on most of the risks and rewards of ownership, such as the maintenance costs or the fluctuations in value. However, you do not actually own the asset.

It consists of a primary rental period where the monthly payments add up to the full cost of the asset plus interest. 

Once the primary period is up, the asset will normally be near the end of its useful life and you will have three options:

  1.  To continue to use the asset in a secondary lease.
  2.  To sell the asset.
  3.  Return the asset to the lessor.

The Benefits

Business loans may be taken out for several reasons such as the need to maintain business operations, invest in equipment, or other manners to advocate growth. They are both beneficial for businesses and usually easy to obtain due to the multitude of lenders. 

No upfront payment

You won’t need to purchase the asset outright before using it, so there’s no costly initial outlay. With some types of leasing facility, you won’t need to worry about maintenance costs, and the provider will bear the risk of the equipment breaking down.

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Access to better equipment

Because you don’t need to make an expensive initial purchase, this could allow you to use equipment of a higher standard. This could well give you the edge over your competitors.

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No need to be encumbered with outdated technology

At the end of the term, you can hand back the asset, meaning you needn’t worry if you don’t need the asset anymore, or it has become outdated, or its value has depreciated significantly.

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Renewal and upgrade options

Most leasing arrangements have options to renew the agreement if you still need the asset at the end of the term. Alternatively, you might be able to upgrade the asset to a more technologically advanced version.

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Fixed repayments

An asset leasing arrangement has a fixed interest rate, giving you the security of knowing exactly what you will need to repay, making your cash flow much easier to manage. You choose a repayment term that will ensure the required repayments are affordable. The repayment term might, for example, be anything between one and seven years.

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Tax benefits

Finance lease rental payments are tax deductible as a business expense. Taking out an asset leasing arrangement shouldn’t affect your ability to obtain loans and other types of credit facilities.

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Qualifing questions

Can I Borrow?