Equipment leasing is quite simply the process of acquiring equipment and technology via third-party finance and paying for it in manageable monthly amounts over a pre-agreed term.
Equipment leasing allows any type of business to affordably acquire business-essential equipment and technology without the upfront expenditure. Leasing enables the business to preserve their cash-flow and put their reserves to much more profitable uses, such as investments, hiring sales staff and growing the business through marketing.
Leasing spreads the cost of equipment from anything between 12 and 84 months, and so the cash impact is far less versus buying outright. It also enables businesses to upgrade to better, more advanced technology, as the more budgetable repayment means companies are less likely to cut corners or opt for cheaper alternatives.
Many profitable businesses choose to upgrade their equipment, assets and technology via equipment leasing because it offers tax advantage over buying equipment outright. A pure lease rental agreement is 100% tax deductible due to it drawing upon a company’s operating budget, as opposed to it’ capital budget.
So how does Equipment Leasing work?
Equipment leasing is like a loan, only the loan is secured by the assets a company has acquired, which allows for a lower rate of interest. The equipment on lease is purchased by the third-party finance company and rented to the business, so the risk to the lender is far lower than a loan, as the equipment could be recovered and sold if the customer wasn’t to keep up their contractual obligations.
What is the Process of Acquiring Equipment via Leasing?
Usually the procurement process is the same as with a cash purchase. The business would establish their need by either researching the market or working closely with a new or existing supplier. Once the equipment need has been established, the business would request a lease option and the supplier provides a range of monthly options.
If the supplier has a leasing Partner in place then they will be able to offer you a range of payment options almost instantly, including monthly, quarterly, and tenures from 1 – 8 years.
Note, terms and pricing may differ per equipment type, as some technologies have a shorter shelf-life than others (for example, mobile phones versus solar panels).
If the supplier does not have a Leasing Partner then the business would refer to their own banking options, or contact a leasing specialist such as Lease Group, who will provide monthly payment options based on the value of the sale.
Once a price and payment term has been agreed by the business, the Supplier or business then submits a formal lease application via the appointed leasing or banking incumbent.
At this point, the finance company performs a credit approval process to establish if the business has sufficient financials to support the lend. This process can take as little as 10 minutes, but can take up to 48 hours for higher values or more complex requirements.
If the business passes credit approval, finance documentation is emailed to the business for signing. The documents are typically raised and issued within an hour of the approval, with most applications being processed via digital signature.
Once the finance documentation has been reviewed and signed by the business, the supplier is then instructed to deliver the equipment and perform any associated installations.
Once the business is satisfied that all of the equipment has been delivered, and is installed and working, the supplier is paid for the sale and the lease payment cycle begins until the end of the contracted term.
What are the benefits of Equipment Leasing?
Putting a business’s hard-earned money to better use is the #1 reason for leasing equipment. 80% of the FTSE 500 leases business equipment and technology to aid their cash-flow, after all, why would a company tie up cash in equipment that is ever depreciating in value?
Here are some other benefits:
• Afford the best quality – no compromises
• Flexible tenures from 12 – 84 Months
• VAT is charged on the smaller payments and not the large fee at the start
• Tax allowable — rentals are an operating expense and so are 100% tax deductible
• Payments are fixed for the term
• One rental can include all equipment and ancillary costs i.e. consultancy, installation, training and maintenance
• Keep credit lines intact — Leasing does not affect any of a business’s existing credit lines
• Businesses are free to upgrade, make additions, or settle the finance agreement at any point
• Flexible options at the end of the Lease – including indefinite ownership
What can be Leased?
Leasing is applicable to a great number of equipment and technology types, including software. The equipment must be used by the business indicated on the lease contract and a location for where the equipment will reside (be used) throughout the course of the contract should also be clear.
Here’s an example of the equipment and technology that can be acquired via Leasing:
• Telecoms
• IT
• Office Furniture
• Software
• Fire and Safety
• Cleaning and Laundry
• CCTV and Security
• Vending
• Gym Equipment
• POS
• AV Equipment
• Renewable Energy (Solar panels, EV Charging points)
• Professional service charges e.g. installation, delivery and training
What are the Requirements of Leasing?
As long as the equipment value totals £1,000 (ex VAT) or more then a business qualifies for leasing.
As is normally itemized in the finance company’s Ts & Cs, the equipment will need to be insured; otherwise an asset protection charge will be applied by the underwriting finance company. This gives both the business and the finance company added security in case any of the equipment gets lost, damaged or stolen during the term.
Due to the Consumer Credit Act and associated regulation, it can be easier and quicker to arrange finance if the company is registered as one of the following:
• Limited Company
• LLP
• PLC
• LEA School
• Any organisation in the public sector
• Partnerships of 4 or more partners
Companies that sit outside of these types (i.e. Sole Traders, Churches, Partnerships of 3 or less) can lease equipment, but both Suppliers and Lenders will need to hold the necessary FCA permissions in order to offer finance.
All lease applications must meet the lender’s credit approval criteria, however funding can be offered to companies with as little as 3 month’s trading. The interest rate may be higher for start-ups and companies with unsupportive financials.