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Types of Lease

Finance Lease

What Type of Equipment

       Assets with a low to medium value

       Depreciate quickly

       Short to Medium working life

       eg Computer

How it Works

       Immediate use of the equipment with little or no capital outlay

       The lease company takes "legal" ownership and rents it to you

Advantages

       Cashflow efficient. Helps you retain your existing capital and reduce your working capital requirements.

       Profit Forecasting & Budgeting. Contracts are for an agreed period and for a fixed monthly amount.

       Flexibility. You can select the term and timing of repayments to suit your cashflow's.

       Tax Advantages. You can offset some of the rentals against taxable profits. The lease company will claim         the writing down allowance and may pass them onto you in the form of lower rentals.

       VAT. You can reclaim the VAT on your monthly payments.

       Problem Free. At the end of the lease you can continue renting the equipment by paying a "peppercorn"         rent.

Operating Lease

What Type of Equipment

      Assets with a high value.

      Depreciate slowly

      Long working life

      eg manufacturing machine

How it Works

       A rental agreement where the residual value of the asset is set at the outset, based on the estimated         use throughout the term

       The lease company takes the risk of what the residual value will be when the equipment is eventually sold.

       You only pay for the depreciation of the asset.  

       Often placed "off balance sheet"

Advantages

       Cashflow efficient. Helps you retain your existing capital and reduce your working capital requirements.

       Profit Forecasting & Budgeting. Contracts are for an agreed period and for a fixed monthly amount.

       Flexibility. You can select the term and timing of repayments to suit your cashflow's.

       Tax Advantages. Claim the full rental as a tax expense. The lease company will claim the writing down

        allowance and may pass them onto you in the form of lower rentals.

       Competitively Priced. The company will take into account the residual value and reflect this in the         payments.

       VAT. You can reclaim the VAT on your monthly payments.

       Problem Free. Avoid residual capital risks associated with disposal / obsolescence of the equipment.  At         the end of the lease you can extend the period or return the equipment.

Hire Purchase

What Type of Equipment

       Assets with a medium value.

       Depreciate on a medium term

       Longer working life

       eg fixed plant, machine tools

How it Works

       You buy the equipment, but pay for it over an agreed period.

       Once the final payment is made you own it.    

       Exactly the same as a cash purchase but without the initial drain on your cashflow  

Advantages

       Cashflow efficient. Helps you retain your existing capital and reduce your working capital requirements.

       Profit Forecasting & Budgeting. Contracts are for an agreed period and for a fixed monthly amount.

       Flexibility. You can select the term and timing of repayments to suit your cashflow's.

       Tax Advantages. You claim capital allowances. Offset interest payments against taxable profits.

       VAT You can reclaim the VAT on your monthly payments.

       Ownership of equipment. After the final payment you own the equipment.

Contract Purchase

What Type of Equipment

       Assets with a medium value.

       Depreciate on a medium term

       Longer working life

       eg car

How it Works

       Lower payments because the lease company expects a balloon payment at the end of the agreement.

       Once the final payment is made you own it.  

 Advantages

       Cashflow efficient. Helps you retain your existing capital and reduce your working capital requirements.

       Profit Forecasting & Budgeting. Contracts are for an agreed period and for a fixed  monthly amount.

       Flexibility. You can select the term and timing of repayments to suit your cashflow's.

       Tax Advantages. You can claim capital allowances. Offset interest payments against taxable profits.

       VAT. You can reclaim the VAT on your monthly payments.

       Ownership of equipment choices. After the balloon payment you own the equipment, extend the period        then pay the balloon payment. Return the equipment and let the lease company pay the balloon payment.

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