Leasing in Business-Forms of Leasing
Other Forms of Leasing
(i) Operating Lease
An operating lease is similar to a standard leasing agreement, however it is usually based on much shorter terms. The idea of an operating lease is that the product is sold or re-leased to another company at the end of the agreement; this means that they do not need to recover the full cost of the item (meaning cheaper monthly payments).
This type of lease is less common, but is often available for products where there is a strong market for second hand equipment (Mainly vehicles). The length of an operating lease is shorter than a standard lease, it can run for a number of years, but will normally be for considerably less than the lifespan of the product to ensure re-selling or re-leasing.
This is particularly beneficial if you only need a piece of expensive equipment for a limited time (e.g. To help fulfil a specific contract), or if you may need to upgrade to newer equipment on a fairly regular basis.
However, an operating lease is not considered as an operating cost in the same way as a standard lease, making it less tax efficient; you should always check with the leasing company on which is best for your business.
Not all leasing companies offer operating leases, and you may need to ask for it specifically.
(ii) Asset Finance
Asset finance (often called Sale and Leaseback) allows you to sell a piece of equipment that you already own in return for a lump sum; you then pay monthly leasing costs for the use for the equipment.
Asset finance is useful if you need to raise finance quickly without needing additional security (the equipment normally covers all security needed), it can also be used for new items, which you buy and then sell to the leasing company. These items are normally required to be easily identifiable, and expected to have a long working life. The length of an asset finance agreement is normally about the same as a standard lease, depending on the age and cost of the equipment.
It is vital to carefully check the details of any asset finance agreement, as some companies will retain ownership of the equipment even after the end of the lease term, and charge you a small monthly or annual fee to carry on using it. You may need to look around for a leasing company that allows you to keep the product after the agreement ends (Sometimes called an Asset Loan).
Most leasing companies offer asset finance, although the terms vary significantly depending on which company you use.
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