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What is finance leasing?

What is finance leasing?

What is a finance lease?

A finance lease is between a finance company or funder (also known as a lessor) and you/your business (known as the lessee).

Simply put, it’s where you need to use an asset without actually purchasing it and taking ownership. The finance company buys the asset and provides use of it to you, while you pay monthly pre-agreed rental amounts.

How does a finance lease work?

The assets are purchased from the supplier by the finance company and remain the property of the finance company. 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.

What are the advantages of finance leasing?

  • Minimal cost upfront
  • Fixed regular payments
  • 50% of VAT can be reclaimed
  • 100% of VAT for maintenance can be reclaimed
  • Choice to retain use of the asset at the end of the facility term
  • Additional line of finance that may not affect core banking arrangements

Is finance leasing right for your business?

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 purchase equipment outright that offers potential cashflow benefits as you can make payments from income generated by the equipment.

If you have an enquiry about finance lease please email info@maffinancegroup.co.uk, call 0115 958 6872 or fill in an enquiry form below. 

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