From office furniture and computer equipment to company cars and vans, leasing enables you to preserve your working capital by paying for the equipment you need in monthly instalments rather than as a resource-draining lump sum.
Types of agreement
Falling under the broad umbrella of asset finance, leasing arrangements come in a number of flavours, including contract hire, operating leasing and finance leasing.
Contract hire is probably the most familiar of these, simply because this is the arrangement that is generally applied to the company cars and it is still the case that vehicles account for the bulk of the leasing market. Under a contract hire agreement, you agree to pay a monthly rental over a set period. The payments do not cover the full cost of the vehicle (or piece of equipment) so you never actually own it. When the leasing period runs out, the usual course of action is to acquire new equipment under another contact hire arrangement.
Operating leasing offers a variation on the same theme. You agree to lease a piece of equipment for an agreed period. At the end of that period, you either buy the equipment outright or return it to the leasing company.
Then there is finance leasing, essentially a form a hire purchase (‘buying on HP’), where the payments ultimately cover the full cost of the purchase.
Why business leasing?
The simple answer is that business leasing (a) preserves working capital and (b) enables you to make purchases that would otherwise be too expensive – hence the popularity of leasing in the company car market. It can also be a lot simpler. If the leasing company owns the equipment, you don’t have responsibility for selling it or disposing of it when it is time to upgrade. Most leasing deals involve the leasing company carrying out ongoing maintenance, this is particularly useful if you’re acquiring complex kit such as computer equipment.
It’s worth looking at the tax implications. If ownership stays with the leasing company then the cost of leasing is deductible from profits. However, if ownership passes to you, the cost is calculated as part of your capital allowance.
There is, of course, a cost. Business leasing companies charge interest at rates that can be as little as 1.5% or as much as 10% above base. You will normally be asked to pay a deposit of between 5% and 10% of the total value of the deal.
For further information on asset finance leasing contact the Finance and Leasing Association (FLA) via www.fla.org.uk or for cars the British Vehicle Rental and Leasing Association at www.bvrla.co.uk.