Leasing

What is Leasing?

Leasing is a well established, tax efficient method of financing a wide variety of capital equipment.

 

How does leasing equipment work?

A lease agreement is a contract between the customer and a lender. The customer agrees to rent the equipment over a set period until all payments are made. The customer then pays one final payment to take ownership of the goods. The final payment is the same value as the previous monthly payments.

 

I’ve heard there is a tax benefit associated with leasing?

All lease payments are classed as rentals and are therefore an allowable business expense. This means that every lease payment can be offset 100% against taxable profits to reduce the tax you pay and therefore saving you money. You will typically claim back 22-40% of the payments made on a lease, dependant on tax levels – which is why so many people do it.

 

Improve Cashflow

No matter what size your business is, cashflow is of utmost importance. Leasing allows you to keep your cash in the bank to use for more urgent, less tax efficient requirements.

 

Have the equipment you want – not what you can afford!

Your business – like many others – may have limited funds or tight cashflow. This may normally limit choice when updating equipment according to your budget. Leasing is simply a facility to spread the cost which in turn enables you to acquire the equipment when required.

 

How would I make my lease payments?

All payments are made by Direct Debit on a monthly basis. 

 

Should I approach my own bank?

Leasing provides a totally separate funding line which can be handy for many reasons. If you were to take a loan from your bank, they would be less willing to provide additional funds in the future during slow periods, or when facing unexpected expenses. Lease payments are fixed for the whole term avoiding the effects of inflation, making cash flow forecast and budgeting simpler. Bank facilities are generally related to interest rates, which is great when they are low – but can cripple cashflow when they increase.

 

Unsecured Funding

The equipment being leased is the only security necessary. Property is not used as security; however, occasionally the finance company may need Directors Guarantees for some Limited Companies.

 

Why Lease?

 

  1. Have the use of new equipment and spread the cost over 1 - 5 years.
  2. Leasing provides funding for 100% of the cost of the equipment
  3. Flexibility – Finance arranged over a specific period, with regular payments provides budgeted, cost effective and tax efficient solutions. 
  4. Upgrade (Avoids out of date equipment) – Technology refresh.
  5. Keep existing lines of credit open (i.e. existing bank facility).  Interest rates on overdrafts fluctuate, with leasing the monthly/quarterly rentals remain at a fixed rate throughout the life of the agreement.
  6. Reduced capital outlay.

 

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