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So you want to learn more about, or are unsure if, Equipment Leasing and if it is right for your business… So here’s what you need to know:
Equipment leasing can be an effective way to access expensive items that your business needs to flourish. Leasing is essentially a method of renting an asset for a period of time — it’s not permanent, and it can help many businesses get to the next level. On this page we’ll look at some of the key advantages and disadvantages of equipment leasing.
Firstly it’s important to answer the following questions:
- What is your monthly budget?
Leasing offers substantially lower monthly payments in comparison to purchasing. But it still has to be factored into your monthly cash flow.
- How long will the equipment be used?
For most businesses, leasing is almost always the most cost-effective way for businesses to go. If you’re using the equipment for three years or more then spreading its cost over it’s useful life helps with financial visibility.
- How quickly will the equipment become obsolete?
Technology is more likely to become outdated more quickly than other types of equipment. Consider this before deciding whether a trade-in makes sense for you at the end of the term.
The Benefits of Equipment Leasing
- Leasing Types
The two main types of equipment leasing used for vehicle inspection equipment are known as lease hire or hire purchase agreements. In a lease hire the equipment is paid for with just one months rental as a deposit whereas a lease purchase requires the 20% VAT to be paid for the deposit. At the end of a lease purchase period the equipment is owned by you but the opportunity to return and get upgraded equipment is gone without a new finance agreement being set-up. A lease hire requires either the additional month to own the equipment outright, or a continuation of the lease if brand new, up-to-date replacement equipment is to be installed.
- What Equipment Can be leased?
You can actually lease almost anything so it is easier to outline the sorts of things that cannot be leased in any way. Things such as civil and electrical preparation works, advertising materials etc are usually excluded but can be considered in some circumstances – the best policy here is to speak to us so we can advise based on the specifics of your business.
What advantages does Leasing offer?
Immediate access to the equipment your business needs
Rather than having to wait for adequate savings or the profit to roll in, leasing equipment means the equipment can arrive at your door within days. You can also get a much higher standard of equipment than you might otherwise be able to afford if you purchased it outright.
Get your budget under control
Leasing is good for future budgeting, because you can make fixed monthly payments, known as a ‘flat rate’, and sometimes negotiate repayments that are fixed to your income. If you know what’s going out of your business in the future, it will help you manage your cashflow — which can be crucial for success.
A lender for every kind of equipment
Lenders usually specialise in different forms of leasing, such as finance leasing, lease rental, contract hire and operating leases — and they’re all slightly different. It can depend on the equipment being loaned out (e.g. hard assets such as plant machinery, and soft assets like office equipment), and what you decide to do at the end of the lease agreement. For example, a finance lease means you won’t own the equipment at the end of the period, and you’ll choose to return it or continue the lease.
Leasing and repairs
Certain types of business equipment lease come with easy maintenance — that is, the finance company will pay for repairs and any spare parts for the equipment. Contract hire (a type of operating lease), often used for vehicles, is a good example of this. After all, the finance company has incentive to provide this, because you agree the equipment value at the end of the agreement. In this way, the item also holds its value better than if you bought it outright.
Free up other finance options
Particularly true for longer-term leases, it may add up and be more expensive than buying the equipment outright, so it’s important to bear this in mind. However, since the finance is secured on the asset, it’s not like a traditional business loan, so you might still be able to borrow money for another business purpose.
Easy to upgrade
There are different options to suit different businesses. Some businesses choose to return their industrial equipment back to the supplier at the end of the lease agreement, after the equipment has served its purpose. Others may choose to purchase it outright at the end of the period, or upgrade to an updated version. On the other hand, if you want to exit the lease soon after you’ve signed, it can be difficult to get out, so make sure it’s equipment that your company will need for the duration of the lease.
Not a fixed asset
Generally, when you lease a piece of kit, you don’t own the title of the asset, and therefore it won’t go on your 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 you don’t have any fixed assets in the business — because this won’t help your case for future business finance.
Suitable for new, growing, or established Businesses
Equipment leasing is an efficient way for new-start businesses to get hold of the tools they need. You may need to be VAT registered and, if your business is a startup, you’ll need to provide a credible personal 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.
So now you know all about equipment leasing!! Why not add a comment below or call us on 0844 800 9785 to discuss your needs!
GETECH supply MOT bays & equipment for all vehicle classes. As a manufacturer within the MOT scheme we are perfectly positioned to remain abridged of current and future known legislation. With a design ethos for total modularity, our equipment is some of the most flexible currently available in the UK.
For more information on GETECH call during office hours, visit http://getech.org.uk or mail email@example.com.