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 — it’s not permanent, and it can help many businesses get to the next level. On this page we’ll look at some of the key advantages and disadvantages of equipment leasing.Get working capital
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 — it’s not permanent, and it can help many businesses get to the next level. On this page we’ll look at some of the key advantages and disadvantages 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.
This page generally applies to both types of equipment leasing, but it's important to bear in mind that many lenders (or 'lessors') will have different names and subtypes of equipment leasing, — so not all of these points apply to every type of equipment lease.
Business owners are often 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-spec plant machinery. Chances are, the gaming machine in your local pub is held on a 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 good 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.
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.
Leasing is good for future budgeting, because you can make fixed monthly payments, known as a ‘flat rate’, and sometimes negotiate repayments 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 can be crucial for success.
Lenders usually specialise in different forms of leasing, such as finance leasing, lease rental, contract hire and operating leases — and they’re 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 won’t own the equipment at the end of the period, and you’ll choose to return it or continue the lease.
Certain types of business equipment lease come with easy maintenance — that is, the finance company will pay for repairs and any spare parts for the equipment. Contract hire (a type of operating lease), often used for vehicles, is a good example of this. After all, the finance company has incentive to provide this, because you agree the equipment value at the end of the agreement. In this way, the item also holds its value better than if you bought it outright.
Particularly true for longer-term leases, it may add up and be more expensive than buying the equipment outright, so it’s important to bear this in mind. However, since the finance is secured on the asset, it’s not like a traditional business loan, so you might still be able to borrow money for another business purpose.
There are different options to suit different businesses. Some businesses choose to return their industrial 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. On the other hand, if you want to exit the lease soon after you’ve signed, it can be difficult to get out, so make sure it’s equipment that your company will need for the duration of the lease.
Generally, when you lease a piece of kit, you don’t own the title of the asset, and therefore it won’t go on your balance sheet. This can be both a good or bad thing, depending on your situation. It’s a 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 won’t help your case for future business finance.
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 startup, you’ll need to provide a credible personal guarantee to the lender. Once you’re set up and the business is making suitable profits, you may then have the opportunity to own the asset after the lease period.