WHAT IS AN OPERATING LEASE?
An operating lease is a form of rental agreement through which you the customer can make use of an asset over a fixed period in return for regular rental instalments to the lessor (the finance company).
WHY CHOOSE AN OPERATING LEASE CONTRACT?
With the financial advantages of an operating lease, it becomes simpler to finance vital equipment and machinery without negatively affecting your cash flow and with the additional benefit of paying for the use of the asset in instalments.
If you want to learn more about financing business equipment, contact our expert team at Anglo Scottish Asset finance for more information.
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This type of agreement is typically used where assets have a high residual value, such as large/expensive vehicles and machinery. The residual value of the asset is estimated when the operating lease is agreed upon and the risk in forecasting this residual value sits with the lessor. The actual value of the asset at the end of the contract could be greater or lower than the agreed estimate, but you the customer wouldn’t bear this risk.
The agreed rental payments do not cover the entire cost of the asset or assets but are calculated based on the original purchase price and the forecasted residual value. Other services, such as maintenance, may also be included in the operating lease, depending on the exact terms of the agreement.
WHAT HAPPENS AT THE END OF THE TERM?
At the end of the lease, the asset is returned to the lessor to be either re-hired or sold to release the residual value of the asset. Due to the nature of an operating lease, it is currently considered as an off-balance sheet arrangement, although forthcoming accounting regulations may change this in the future, subject to certain new rules.
An operating lease agreement can provide a business with much-needed assets which it may not have been able to access otherwise.