A finance lease is simply renting the asset over an agreed period of time and you usually remain responsible for the maintenance.
A finance lease is simply renting the asset over an agreed period of time and you usually remain responsible for the maintenance. Funding up to 100% of the capital cost of the asset. VAT is paid on the rental payments rather than the overall purchase price. At the end of the lease, you have the option to extend the lease or request to sell the asset at fair market value and receive the majority of the sale proceeds.
One of the key features of finance leasing is that the customer takes on most of the risks and rewards of ownership but never actually own the asset. In practice, this means that a finance lease looks and acts a lot like hire purchase but they’re different on the balance sheet.
Finance leases are available for all asset categories including vehicles, office equipment and industry-specific machinery.
The assets are purchased from the supplier by the funder and remain the property of the funder. You will then be able to use and retain possession of the asset, paying its full cost amount in fixed rental payments over the term.
At the end of the term, you can simply hand the asset back to the finance company.
However, you may be offered a secondary period lease for a nominal amount, known as a ‘peppercorn’ rental – essentially starting the lease again.
A third option is selling it to a third party that isn’t related to your business, at a fair market value.
If you sell it for more than the final payment of the asset, you will be able to keep a pre-agreed percentage of the net sale profit. However, if it’s worth less, you will be invoiced for the difference.
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Some benefits of using a finance lease are:
A finance lease facility is good for businesses who want to use equipment that has a short usage life, such as IT equipment, or for those who are in need of expensive equipment without wanting to pay the full amount upfront.
It’s an alternative to purchasing equipment outright that also offers potential cashflow benefits as you can make payments from income generated by the equipment.
Some things to consider before proceeding with finance lease are:
VAT: Your deposit will be lower as the VAT is spread over the term of the agreement rather than an upfront cost
Contract hire: Have a look at our specialist vehicle platform for other vehicle leasing options for your business
Maintenance: Depending on the type of leasing product you choose, you may be responsible for maintenance of the asset
End-of-lease: Depending on the lease, you can either return the asset, sell it to a third party, sell it on behalf of the funder or keep the asset and pay continuing rentals.
MAF Finance Group can compare finance offerings from a wide panel of lenders to find the best option for you.
If you would like to get a quote or need further information, simply fill in the form and we will contact you. If you want to speak to someone directly, you can call us on 0115 958 6872 and a member of our team will be happy to speak to you. Alternatively, email us at firstname.lastname@example.org.
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