Is lease financing the right option for you?

Johnson Reed
5m read
Is lease financing the right option?

In the absolute least bias way possible, I think lease financing as an option for all businesses is great! But I realise that not everyone understands WHY I feel this way and this could be down to the fact that people are still fairly unsure as to what exactly lease financing is.

I have to be careful how I approach this subject as this article is not you, the reader, being sold to by any means. The aim of this article is to lay out the facts, what exactly the process is, what you need if you want to utilise the option, along with some positives AND some negatives of leasing. Hopefully, by the end of this article this will leave you more educated and in a better position to fully decide whether it is a finance option you would like to pursue or if it is not right for you.


What is Lease Financing?

Essentially, choosing this option lets your business pay for your assets. It is an agreement between the original owner of the asset (lessor) and you, the new owner of the asset (lessee). The lessor allows the lessee use of their asset that will significantly help their business, in exchange for monthly payments.


What happens at the end of a lease financing agreement?

Towards the completion of your lease agreement, you will be notified that your contract is approaching the end. You will then be presented with 3 different options of how you would like to continue:

  • The lease agreement is left to end and the asset is returned to the lessor.
  • The lease agreement is renewed for an extension on a rolling contract or a defined period.
  •  The asset can be bought outright with an additional monthly payment by the lessee.

So as you can see, it is rather flexible when you come to the end of the original agreement on what the next steps are.


What needs to be provided for lease financing agr?

When in the process of acquiring an agreement, what you will be asked for will vary depending on your situation.

For new start-ups, you will be asked for:

  • A full business plan
  • Quotes from suppliers
  • Personal bank statements for proof of investment/savings
  • Business registration
  • Conformation of facilities being used for business

For existing businesses, you will be asked for:

  • 6-month bank statement
  • Previous year accounts
  • Director(s) information
  • Background on the project

When speaking to one of our brokers, you are more than welcome to ask why something is being required, and they will be happy to go through this with you in detail. You will also be asked to provide a form of ID to offer proof of address and signature and you may be asked to provide a personal guarantor depending on what type of agreement you are looking for.


What is the process of acquiring a lease financing agreement?

Stage 1 – You approach us with information about your company (shown above) and details about the equipment you wish to lease.

Stage 2 – We provide an immediate response with what, if any, information is needed to secure your credit.

Stage 3 Searches performed and credit approved within 24 hours (we currently operate with a 93% acceptance rate).

Stage 4 – You sign the leasing paperwork. Chosen supplier informed.

Stage 5 – Delivery of the equipment is arranged by the supplier.

Stage 6 – Supplier is then paid, congratulations! Your contract starts.


Benefits of using Leasing finance

So now you know what it is, how it ends, the actual process of initial enquiry to receiving your assets, and what you will be required to provide, now it is time to look at the benefits of the option:

  • Payments can be easier to budget as the monthly business success is paying for your equipment.
  • Unlike outright purchase you will retain much needed cash within your business to meet ongoing and exceptional running costs.
  • Highly likely there will be minimal deposit to pay at the start of the agreement
  • Tailor your repayment structure to cater to your cash flow
  • Due to spread cost, you may be able to afford better quality equipment as a pose to if you were paying for it all upfront.
  • By retaining the cash in your business you will be able to act quickly in meeting sudden cash requirements to secure stock, staff and resources.
  • With leasing, ownership of the asset remains with the lessor, therefore your liability is only to pay the rentals.
  • Massive tax benefits – leasing is a form of Operational Expenditure (OPEX), which is the cost of the day-to-day running of your business. These types of costs are fully-deductible from your annual tax bill, whereas the alternative buying the equipment outright (Capital Expenditure) is only partially-deductible depending on the amount of expenditure in the tax year.


Drawbacks of using leasing finance

As promised, this is not a one-sided arguments. Whilst I do believe it is extremely beneficial to use leasing agreements, there are a couple of points you should consider before picking up the phone to us:

  • The lessor is the legal owner, and you will not own the asset unless the amount is paid off mid-agreement or at the end of the agreement.
  • If your company does go bankrupt, the asset is not protected.
  • At any point if you are unable to pay, you run the risk of having the asset repossessed.
  • Non-payment can have a negative impact on the credit rating of the business and the guarantor.


Decision reached?

So there it is, you won’t find many finance companies offering you both sides of the story. Whilst we do want to focus on the positives, and they do actually outweigh the negatives, it is important that before a final choice is made, that you are aware of the potential negatives of entering an agreement, mainly being in a position where you are unable to pay. However, this is why the lenders we work with require so much information, to make sure that this situation doesn’t arise and in our experience, finance is never granted to anyone that shows a sign of this situation occurring, leaving you with the peace of mind that you will most likely not find yourself being unable to pay.

So now you’ve got all the knowledge, is leasing finance the right option for you and your business?

If the answer is yes, you know what to do next… 0161 429 6949, let’s talk through some options today and get the ball rolling with an equipment lease agreement for your business. Neither me nor the team at Johnson Reed know when the right time to expand your business is, but just know that when the time is right, we will be here to help you!