Leasing Finance – Small Business Finance

Leasing Finance

Leasing is similar to rental, in that you avoid having to pay the full cost of an expensive item (e.g. Machinery and vehicles), and instead pay the le asing c ompany each month for use of the equipment. This allows you to get essential equipment that you may not be able to afford in one go. A lease contract can last from 2 to 10 years depending on the details of the product, such as usable life and cost.

Advantages of Leasing

With leasing you do not have to pay the full cost of the item in one go, this may allow you to buy better equipment (e.g. Bigger capacity, faster, more efficient, etc) that you otherwise could not afford. Security is less of an issue with leasing, as the finance can be secured on the item you are leasing; so you are less likely to need additional security as you would with a loan. Leasing costs are often tax deductible (depending on the cost and type of equipment you are leasing), or if you pay minimal taxes the leasing company may be able to claim the allowance on your behalf, reducing the leasing costs.

Disadvantages of Leasing

You do not own products that you lease, making upgrading and replacing the equipment more difficult, and you can only gain a portion of the item costs back if you sell it after the lease expires. Over the long term leasing can work out quite expensive, you avoid paying a lump sum but end up paying more than the cost of the equipment without actually owning it. Although you do not own the leased equipment, you are usually responsible for the maintenance and repair costs. You either pay for the costs as they occur, or pay the leasing company or an insurer for a policy to cover them.

Other Lease Based Finance Options

Asset Finance (Sale and Leaseback)

Asset finance allows you to sell equipment that you already own, and then lease it back for a monthly fee. This gives you finance quickly on significant items that have a long working life, with leasing terms usually lasting between 2 and 10 years.
Remember though that many asset finance contracts will make the finance company owner of the product even after you have completed the lease. You may need to look for an Asset Loan contract if you wish to keep the product after the agreement has ended.

Operating Lease

An operating lease works on a similar basis to standard leasing, except that it is based on shorter term contracts; and one item may be leased several times over its lifespan. Although it is not as tax efficient as standard leasing, it does make it easier if your business needs to regularly update its equipment; or has varying levels of demand and often needs quick capacity increases. Leasing in Business

Article Index

1. An Introduction to Small Business Finance - Factoring, Invoice Discounting, Invoice Finance
2. Banking and Overdrafts - Small Business Finance
3. Credit Card Finance - Small Business Finance
4. Grant Finance - Small Business Finance
5. Small Firms Loan Guarantee - Small Business Finance - now called Enterprise Finance Guarantee
6. Finance From Outside Investors - Small Business Finance
7. Finance From Family and Friends - Small Business Finance
8. Leasing Finance