Benefits of Leasing

Taking out a financial lease is a very popular way of making an investment into your business, particularly when a key piece of equipment is needed to expand or improve operations but the cost to purchase outright is too high. Here is our guide to financial leasing, and how it can benefit your business.

What is a finance lease?

A financial lease is essentially a loan for a specific piece of equipment, a vehicle or even a complete fit-out. Your lender takes on the costs of purchasing the item, and you pay them back a set amount for a fixed period of time. During that time, you treat the equipment as if it was your own – so all repairs and maintenance are your responsibility, as are any other costs or logistics associated with the equipment.

In the strictest terms, to be considered a ‘finance lease’ rather than any other type of lease, there are terms that must be met:

• The company taking out the lease has the option to buy the equipment or vehicle (the asset) at the end of the lease period, usually for a low price.
• The lease period should be a minimum of 75% of the expected lifespan of the equipment/vehicle.
• The total of all lease payments should be at least 90% of the price of the equipment/vehicle.

What are the benefits?

The key benefit of this kind of financial instrument is that your business can get essential equipment without the burden of paying for it outright. Consider a situation where your business relies on certain machinery for day-to-day operations, and it becomes broken to the point of it being uneconomical repair – but you cannot afford to replace it. Your operations would draw to a standstill, your customers would be left with no product, and your business would suffer catastrophically. Finance leasing provides you with the funds to make your essential equipment purchase.

A second benefit, along the same lines, is where you need to invest in newer machinery or equipment to improve your productivity, expand into new markets, make new products, better compete, or otherwise boost your business. Once again, the price of the equipment is too high for you to buy it, but you know that it will be an investment that pays for itself in optimised throughput, customer retention/acquisition, and a stronger competitive position. Finance leasing is the route to take.

Thirdly, you might look to expand your existing business. You are currently at capacity for the equipment that you use – i.e., it is being used as much as it can be, and you cannot further increase production beyond the limits of the equipment throughput. In this situation, you would look to duplicate what you already have, by purchasing another piece of equipment and thus having the ability to double your output. An asset financing lease can help you to procure the equipment that you need to grow your business, and you can pay back the costs of purchase periodically rather than in one lump sum.

What are the financial advantages?

So far, we have discussed the benefits to the business in terms of the ability to grow, expand or even simply maintain operations. In financial terms, however, there are other advantages. The chief benefit of this type of financial instrument is that you agree to a fixed payment schedule at the outset of the financial lease – meaning that outside factors like the global economic conditions and bank and base interest rate fluctuations should not have an effect on your outgoings.

This is particularly useful for financial planning purposes – you have the ability to determine your expected outgoings over a period of many years, rather than having to respond to market conditions. Secondly, you have the opportunity to build flexible terms into your agreement, meaning that you can better define the payment structures in conditions that suit you and your business.

What next?

If you have any questions about financial leases, would like to find out if this is the best option for you, or you are interested in taking out a financial lease, you can talk to one of our experts. All it takes is a telephone call and one of our friendly consultants will answer any questions you have.