Asset Finance FAQ

Define a Lease, how does it differ to a loan?

A Lease is an agreement to rent the use of goods for a fixed period, title of good remains with the leasing company until the end of this period when title of is passed to the customer. A loan differs from a lease in that the title of goods is passed immediately to the customer. Lease payments are tax deductible for corporation tax purposes whereas for loan payments only the interest element qualifies for deduction against tax.

Why is a lease tax efficient?

Because lease payments are 100% deductible as an expense of the business this makes leases an efficient way of paying for the use of equipmenby by the business. A loan or cash purchase only qualifies for a small initial tax allowance depreciating over the period.

How much will it cost?

This is dependent on your company’s circumstances, the equipment you wish to acquire and the terms required of course. The key advantages to bear in mind are that you are spending less upfront, saving on corporation tax and earning interest on the cash you didn’t outlay. The VAT is added to each rental and therefore also spread over the period of the lease.

Is bank borrowing cheaper?

Initially a bank loan will look attractive due to the slightly lower rates, however over the period of the lease the tax savings and interest on your cash add up to make them roughly equal over the long term. However bank funding is normally secured on your business and its assets and affects your current line of credit whereas a lease is only relates to specific equipment and has no effect on current credit lines. It makes sense to have a mix of bank funding and lease finance for most businesses.

Ok, but I’m still unsure why I should use a lease over a loan?

Well - allowing that each business will have its own needs, it is worth considering that bank funding can be used for any of the business needs but if you tie up your bank credit line bu using it for all your machinery and equipment requirements this may mean that when you need bank funds for your other business needs your bank may not be willing to extend your credit line.

What happens to the goods at the end of the lease?

Although for legal reasons title to the leased equipment remains with the finance company it is standard practice for us to act as a third party and transfer title to the goods to you the customer at the end of the agreement. This offers un-interrupted possession of goods as far as you are concerned and for all practical purposes there becomes no difference between the lease and outright ownership of the goods.

What equipment can be leased?

Anything which is identifiable as an asset and required to be used by the business.  We provide finance for goods including up 100% of software including training and maintenance through to Industrial catering equipment, book debts and stock. If you are unsure as to whether a particular asset can be leased simply pick up the phone and ask us as we often surprise people with the range of options available.