WHAT IS A FINANCE LEASE?
A finance lease is a contract between a lessor (a funder or finance company) and a lessee (your business), where the lessee requires the use of business equipment, vehicles, or machinery. The lessor provides the use of such equipment in exchange for pre-agreed regular payments. This is a great option for businesses that need expensive equipment but do not want to purchase them outright.
HOW DOES A FINANCE LEASE WORK?
With this type of agreement, the equipment (asset) remains the property of the finance company, while you, the customer, retain and use the asset, paying for its hire over the length of the lease term.
A finance lease transfers substantially all of the risks and rewards of ownership of the asset to the customer, so that the asset appears on the customer’s balance sheet, with all outstanding rentals represented as a liability.
IS A FINANCE LEASE THE RIGHT CHOICE FOR YOU?
Contact our team to discuss your options and learn more about Finance Lease.
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Key features
There are two main forms of finance lease agreements – a residual value lease or a fully amortised lease.
Residual Value Lease
In a residual value lease, the diminishing value of the asset is reflected in the monthly rental, with a final balloon payment covering the estimated residual value at the end of the contract.
If the price of the asset when sold, is above the predetermined balloon payment, then the lessor will usually refund a percentage of the proceeds to you the customer. If the price is below the balloon payment, then you will be liable to cover any shortfall.
Fully amortised lease
With a fully amortised lease, you pay back the entire capital cost of the vehicle plus charges as a monthly fee over the contract period.
In both options, you the customer are responsible for the maintenance of the asset and any servicing that may be required. You would also be accountable for any damage that occurred to the asset, so it is important to take out an insurance policy covering all potential damages that could arise over the lease period. Separate maintenance contracts may be available with the asset, and we are always happy to discuss this.
WHAT HAPPENS AT THE END OF THE AGREEMENT?
At the end of the finance lease period, you will usually be given the option to extend the lease beyond the primary period or to return the asset. If an extension on the finance lease is not required, the asset will normally be returned to be sold on.
Alternatively, you could sell the asset to a third party on behalf of the lessor. You may be given a rebate of rentals equating to a part of the sales proceeds, depending on the terms outlined in the original finance lease agreement.
What are the advantages?
- Set regular payments
- Minimal cost upfront
- Rentals are usually Corporation Tax deductible
- 50% of VAT can be claimed on the finance element
- Additional line of finance that may not affect core banking arrangements
- Potential to carry on using the asset at the end of the lease period
HOW IT WORKS
Five steps to easy finance. Find out how we get you your finance lease below.
Decide
DECIDE
Decide on the asset you need to help your business grow
Talk
TALK
Talk to us, tell us about your business and the asset you wish to acquire.
Approval
APPROVAL
We will reach out to our panel of lenders on your behalf to gain approval.
Sign
SIGN
Sign your document, once approved we’ll send you your documents to sign. After which we will transfer payment to your asset supplier
Final checks
FINAL CHECKS
We’ll do a final check to make sure everything is running smoothly, and you can start reaping the benefits of your new asset.