Paying cash for an asset can be a significant drain on your working capital. Leasing the asset, however, gives you access to the asset without paying for it all at once. All forms of leasing are basically rental agreements giving you (the lessee) the right to use an asset owned by the lessor (finance company) for a specific period of time in return for regular payments (rental payments). You can lease almost anything, from equipment valued at a few thousand pounds to assets worth millions. Leasing contracts are flexible and can be tailored to your needs. B Financial will help you to find the most appropriate and cost-effective leasing plan for your business.
What are the main benefits?
It provides you immediate use of the asset without paying for it all at once.
It frees up working capital and bank loan/overdraft facilities for business growth.
The Lease contract is structured for the length of time you require the use of the asset.
Sale & Leaseback allows you to release capital in assets you already own.
We can provide a solution irrespective of credit history or previous problems.
It offers the most tax efficient structure for your business.
Types of Asset Finance
We can generally distinguish three major types of leasing: finance leasing, operating leasing and contract hire. Although strictly speaking not a type of leasing, we also include hire purchase:
How Leasing Works
There are many types of leasing but, fundamentally, all fit one of two categories:
Direct Lease
You identify the asset (and negotiate the price) and arrange for the leasing company to buy it from the manufacturer (if new) or the previous owner (if used) to rent it to you.
Sale-and-leaseback (also called purchase leaseback).
You sell an asset you already own to the leasing company for fair market value or book written down value (whichever is less) and then lease it back.
In both cases, the lessor owns the asset, not you, and rents it to you. As with any other rental agreement, you return the asset at the end of the lease to the lessor. Some leases grant you an end-of-lease option to renew the lease at a minimal cost (secondary period) or to sell the asset to a third party as an agent of the lessor.
It is important for you to anticipate your future needs as each option has its advantages and disadvantages and will affect your monthly payments. Our Business Finance Consultants will help and advise you to make the right choice for your business. Call us today on 01293972071 or submit an enquiry.
Choosing the Right Type of Finance
All types of financing offer different advantages and it is important that you assess your circumstances and needs before choosing a specific finance contract. For example, you may:
- want to own the asset straight away, an outright purchase (cash or loan/overdraft) might be appropriate;
- want to own the asset at some point in time and want to take advantage of instalment payments, hire purchase might be the best option;
- not want to own the asset at all but require it for most of its useful life, consider a financial lease; and require the asset for a period of time significantly shorter than the useful life of it, consider an operating lease.
Benefits of Asset Leasing
Simplified cash flow management
Lease payments are usually flat, making cash management more predictable and easier than with a variable rate loan. The fixed interest rate of a lease also helps if interest rates rise.
Maximise Financial Leverage
Your lease can often finance everything related to the purchase and installation of the asset and may free up cash flow to pay for items such as training.
Tax advantage
Operating lease payments are generally tax deductible just like depreciation charges but are made with pre-tax money. Cash purchases, in contrast, are made with after-tax money. Hire purchase agreements to allow the lessee to claim capital allowances.
Hedge against obsolescence
Depending on your end-of-lease option, just return the asset to the lessor. You will not have the hassle of selling the used asset or run the risks related to residual value and (technical) obsolescence.
Notice Period
If your lease includes the option to renew, take note of any time periods in which to give notice in case you do not want to renew the contract. Some leasing companies will automatically renew the contract if you fail to give notice.
Purchase Rights
If negotiating the right to purchase the asset at the end of your lease, a predetermined fixed price offers more value as the ‘fair market value’, which theoretically is always available to you.
Glossary of Terms
You identify the asset (and negotiate the price) and arrange for the leasing company to buy it from the manufacturer (if new) or the previous owner (if used) to rent it to you. (see also sale-and-leaseback)
The period of time during which an asset has economic value and is usable.
Price at which an asset is sold and bought in the open market.
A lease is a contract in which the lessor purchases the asset selected by you and conveys the use of an asset to you for a specific period of time at a predetermined rate.
The periodic rental payment to the lessor for the use of the asset. The lease rate is primarily determined by the total cost of the asset, the duration of the lease and the interest rate level.
The lessee is the user of the asset being leased, i.e. you.
The lessor is the party who has legal or tax title to the equipment, grants the lessee the right to use the equipment for the lease term, and is entitled to the rentals, i.e. the leasing company.
You sell an asset you already own to the leasing company for fair market value or book written down value (whichever is less) and then lease it back (see also direct lease).
The resale value of the asset at the end of the lease.