Equipment leasing

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Equipment leasing

Updated: 16th January 2021

Equipment leasing allows your business to access expensive machinery and equipment without depleting vital working capital. The lender owns the asset in question and makes it available for use, so providing an alternative line of credit for your business.

Flexibility is built in at the end of an equipment leasing agreement, allowing you to act according to the market conditions at the time, and factor in your own business performance. This type of leasing arrangement enables your company to grow in a sustainable way using fixed term lending arrangements.  

How does equipment leasing work?

There are two types of equipment leasing – finance leases and operating leases. Finance leasing arrangements continue for the majority of an asset’s useful economic life. Operating leases on the other hand, are generally in force for only part of the useful life of an asset.

Ownership does not transfer at the end of either type of equipment lease, but you are able to use the asset as if you were the owner. The lender cannot repossess as long as you comply with the agreed terms throughout the lease period.

Advantages of equipment leasing

  • Most types of asset can be leased in this way, including soft assets such as office equipment
  • Equipment leasing offers a new line of credit, and does not affect your bank overdraft facility
  • Business growth can be controlled and scaled over a number of years
  • Working capital is preserved so you can cover emergency costs if necessary
  • Costs are spread over the term of the lease
  • Repayments are allowable against tax

What types of business use equipment leasing?

New and growing businesses use equipment leasing to access high quality assets that might otherwise be out of reach financially. Established companies also recognise the value of equipment leasing, using it to retain control of their cash flow and optimise business performance.  

Industries commonly taking advantage of equipment leasing include construction, manufacturing, and agriculture. Construction businesses do not tend to use expensive equipment on a long-term basis and benefit greatly from the flexibility offered by leasing arrangements.

The type of lease agreement also assists seasonal businesses, including those operating in the farming and agriculture industry, as it allows them to control their outgoings more effectively.

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Considerations for equipment leasing as a finance option

  • Ownership does not transfer to your business at the end of the arrangement
  • Some lenders may offer more flexibility in terms of the length of a lease
  • Would you need to upgrade your machinery regularly? If so, this could influence the type of equipment lease you choose.
  • Maintenance and repair costs are the lender’s responsibility. This is favourable from a cost point-of-view as long as there are no long delays whilst waiting for repairs to be carried out.

Real Business Finance are equipment finance specialists and can help you decide whether equipment leasing is right for your business. We have contacts with more than 50 of the best commercial finance lenders in the UK. Please contact one of the team to arrange a free initial consultation.

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