Business Equipment Leasing: Is It Your Route To Business Success?

Acquiring new equipment can be crucial to ensuring business success – be it in the form of business expansion, a major new contract or business opportunity, or to simply replace existing equipment that has become obsolete or inefficient.

But to do so can represent a major drain on the business’s lifeblood – its cashflow. Many pieces of business equipment run into thousands of pounds, and for smaller businesses looking to grow, big up-front costs just aren’t possible.

That’s where business equipment leasing can play a vital role. So popular has it become, that the Equipment Leasing and Finance Association estimates that four-fifths of businesses now lease some of their equipment.

What is business equipment leasing?

Business equipment leasing is a simple and flexible method of funding the acquisition of capital or commercial business equipment and a whole range of other asset types.

It’s also suitable for all types of business from start-ups or existing businesses investing in new equipment, to major companies investing in major new plant and machinery.

The reason for this, other than available tax benefits and the ability to budget more easily, is that usually the equipment itself can be used as security, which makes leasing equipment a very accessible form of funding.

Also, as it is possible to lease almost anything for your business, equipment leasing can provide a lifeline for any cash-strapped businesses in need of the tools of the trade.

Business equipment leasing is basically a loan in which the lender, typically an asset finance company, buys and owns the equipment. They then lease it to a business at a flat monthly rate for a specified number of months.

At the end of the lease, the business has a number of options. These include:

  • continuing to lease the original asset
  • leasing new equipment
  • returning the equipment and walking away
  • buying the equipment for its fair market value or a previously fixed or predetermined amount

What are the benefits of business equipment leasing?

One of the advantages of equipment lease financing is the wide availability of equipment that can be leased. Business owners are often surprised by the sheer variety of equipment obtainable on a lease. Office fixtures and furniture, printing equipment, large coffee machines, commercial vehicles – the list of assets that lenders will provide leasing for is almost endless.

As well as being a good way to access expensive equipment without heavy initial upfront costs, leasing equipment can also be useful for subcontractors. With a series of short term projects lined up, it’s cost-effective to lease a piece of equipment for a set period of time.

Rather than having to wait for adequate savings or profits to accumulate, business equipment leasing means that the equipment can be available within days. You may also be able to select a much higher standard of equipment than you might otherwise be able to afford if you purchased it outright.

Leasing equipment is also a good way of keeping tight costs under control. There are fixed monthly payments, so you know what the outlay is every month. If you know what’s going out of your business on a monthly basis, it helps with budgeting and managing cashflow, which can be crucial for success.

Equipment leasing is an efficient way for any new-start business to get hold of the tools they need. You may need to be VAT registered and, if your business is a start-up, you’ll need to provide a credible 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.

Types of business equipment leasing

The two main types of equipment leasing agreements are known as finance leases and operating leases.

Finance lease

With finance leases, the lessee (the business taking out the lease) is responsible for all the risk and rewards of ownership of the equipment. Basically this means that the lessee is in a broadly similar position as if they had bought the asset and may share in any profit (or loss) on its disposal.

Operating lease

With operating leases, any risk or rewards of ownership remain with the leasing company and the lessee is simply renting it. The asset will have a resale value at the end of the lease period – known as its residual value – and this will typically go to the leasing company.

The most suitable type of business equipment lease can often depend on the type of equipment being leased and what is decided at the end of the lease agreement.

Generally, when a business leases a piece of equipment, ownership remains with the leasing company and therefore it does not appear on the lessee’s 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 the business does not have any fixed assets, as this may not help its case for future business finance.

Seek expert advice

With business equipment leasing clearly on the radar of more and more businesses, seeking impartial independent financial advice is vital for those that want to optimise this form of finance.

An experienced advisor should be able to advise you on which business equipment leasing product is best suited for your needs and get involved at an early stage of the buying cycle. That way, your supplier can put in place a leasing solution that is right for you.

Leasing new business equipment doesn’t have to be a daunting prospect and, at Anglo Scottish, our team of finance specialists have years of experience arranging equipment finance for wide variety of businesses.

Our aim will always be to provide your business with an equipment leasing solution that is most cost effective while meeting your needs. In this way we can help your business reach its full potential.

Want to find out more about your equipment leasing financing options? Get in touch with Anglo Scottish Asset Finance today.