Depending on the type of equipment you want to lease and your business requirements you can select from a range of equipment financing options.
The most common leases are Operating Lease and Finance lease.
These are described below with an indication of where they are used most successfully.
Operating Lease
An Operating Lease is effectively an equipment rental. In an operating lease the leasing company estimates a residual value for the equipment and then bases your payments on the equipment value less the residual value.
This means payments will often be less than using other financing. All payments are a business operating expenses and fully tax deductible.
Operating Leases are usually popular for equipment that has a high rate of technological obsolescence such as IT equipment where a regular lifecycle upgrade is required for business efficiency.
NO BALLOON PAYMENT is required to be made.
Finance Lease
In a Finance Lease the risk associated with the residual position rests with the lessee (you) not the leasing company. The lessee agrees to a residual position that they will pay out to own the equipment at end of term.
Finance Leases are well suited to assets that have a predictable useful life. The business has no option but to purchase the equipment for the agreed Residual Value at the expiration of the lease.
“Risks and benefits” of ownership vest with lessee, a the lease indemnifies the lessor from any loss on sale.
Commercial Hire Purchase (CHP)
The client obtains title to the equipment upon entering the agreement. The asset and the liability are then included on the business’ balance sheet and only the interest portion of any payment is tax deductible all principal reductions are accounted for as after profit expenses.
With this agreement comes all the “risk and benefits” of ownership vest with user.
The transaction is subject to the Hire Purchase Act.
Sale & Leaseback
Under a Sale and Leaseback we buy back from you your existing equipment you have paid for. This unleashes any built up capital within the business and provides the business with such funds for its operating purposes.
Converts assets into cash. This can be used for long term capital projects, and assets to expense item.
Removes ownership responsibility for the equipment.
Meets flexibility requirements to upgrade or exchange in the changing environment.
No disposal costs.
Capital Easy provides the following benchmarks for sale and leaseback:
Trade-ins of equipment under 12 months old- full cost price of the equipment – Invoice proof.
Equipment over 12 months – either the depreciated value of the equipment as determined by the Tax Act or the market value of the equipment. The buyback price of obsolete equipment may also be integrated as part of the Financing package as a future credit, or refunded in cash.
Leasing Benefits
There are many good reasons why your business should be considering leasing equipment. Here is a summary of the main reasons of why the businesses we deal with like leasing.
Conserves Capital
Leasing eases the strain on working capital by providing 100 percent financing without a down payment. Your lease payments are simply an operating expense. Therefore your existing lines of credit remain intact for your other business needs.
Cash Flow Management
Leasing smooths cash flow and budgeting by providing regular fixed repayments. You have the benefits provided by the equipment whilst you make you payments. Payments can be structured to meet business cash flows with monthly, quarterly, semi annual or annual payments.
100% Tax Deductible
Lease payments are a 100% tax deductible business expense.
Off-Balance Sheet Financing
Lease payments are an operating expense they are not capitalised to the Balance Sheet and eliminate asset accounting and depreciation schedules.
Fixed Payments
Your payments are fixed for the term of your lease protecting you if interest rates climb.
Leasing vs Buying
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No upfront capital requirements |
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No lump sum payment |
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Cash flow, fixed regular payments |
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Upgrade / Replacement during term |
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Equipment and maintenance through a single payment |
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Ability to exchange equipment between different contracts and times |
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Disposal |
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No equipment residual risk |
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