FREQUENTLY ASKED QUESTIONS
We find that the same questions come up time and again, which is why we feel it's useful to have a page such as this on our web site. If, however you don't find the answer you are looking for please feel free to contact us and we will be happy to answer any and all of your questions regarding leasing for new and used equipment.
Should I pay cash or lease?
You may be able to afford to buy the equipment outright, but before you make this decision you must consider the following:
- All leasing payments are rental payments and as such are an allowable business expense, therefore if a business is making money the profit can be reduced by the amount of the rentals you pay each year, which in turn reduces your tax bill.
- Payments are normally the same throughout the lease contract. This means that increases in interest rates do not affect you and your cash budget can be utilised more effectively.
- Leasing enables you to protect your cash to use for other needs such as new stock, staff training, advertising, new business opportunities and unexpected expenses.
Do my payments increase if inflation or interest rates rise?
Your monthly payment is fixed at the start of the lease and so is unaffected by interest rate rises. You can budget your cash flow more accurately. As inflation rises, because your payments are fixed, the cost of the equipment reduces in real terms.
Are there tax benefits associated with leasing?
Any business wishing to acquire capital equipment should look for the most tax efficient way to purchase.
All lease payments are treated as an allowable business expense and therefore attract tax relief for the full duration of the lease agreement. Your accountant will be able to confirm this.
More details on the Corporation Tax allowance changes effective from April 2012 can be found Here.
How do I make my payments?
Direct Debit is the preferred method of repayment with the money being released on the same date each month or quarter. Quarterly invoice payments are also available.
Should I go to my bank?
Using your bank for all your business funding is not good practise.
If you use your overdraft facilities you may leave yourself in a vulnerable position to react to any sudden needs for short-term borrowing.
Another common problem is encountered when your bank decides to change the interest rate mid-way through a loan or reduce your overdraft facilities, which can dramatically affect the cash flow of your business. Sometimes banks will limit the amount they will lend to you without further security such as taking a charge on your home. It is not financially prudent to have all your eggs in one basket.
Nearly every market sector large or small benefits from leasing, from new start business to large established companies.
How does a lease work?
A lease agreement is a contract between you, ‘the customer’, and a leasing company. This enables you to have and use a piece of equipment over a period of time on payment of rentals to the leasing company.
With a typical lease agreement, you make a series of regular payments (usually on a monthly basis), thus helping cash flow, as opposed to a large capital outlay for the equipment.
You won’t have a depreciating asset on your books, and can benefit from the tax advantages of paying a lease rental.
Will I need to find a hefty deposit?
A nominal amount (normally the equivalent of 1 monthly payment) is generally all that is needed in advance of a lease agreement.
This small cash outlay means you can have the latest technology and start to enjoy the extra profits this generates before your next lease payment is due.
The full invoice amount is settled with the supplier upon the equipment being installed or delivered to your satisfaction.