Read the answers to your most common questions
Leasing is a contract between the funder (lessor) and the end user (lessee) for the acquisition and use of equipment. The lessor purchases equipment from a supplier chosen by the lessee and the lessee then pays rentals to the lessor in return for the use of the equipment over an agreed period, typically its working life.
All types and sizes of businesses use leasing to acquire equipment, from new start companies to PLC’s, government bodies and so on. There are a variety of benefits to leasing and therefore a number of reasons as to why companies lease, be it for the tax efficiency or the protection of their cash flow, for example.
The minimum deal size is £1,000 VAT and lease terms are available up to 7 years, depending on the asset. IT, for example, is typically leased over a 3 year period, as the lease term reflects the useful life of the equipment.
Leasing is wholly allowable against taxable profits and is often cheaper than cash purchase. It is estimated that over 90% of FTSE 100 companies use leasing to acquire equipment. Rentals are classed as a business expense and are thus paid out of pre-tax profits. It is worth speaking to your accountant or financial advisor for an impartial view on how you could benefit.
Rentals are fixed and are based on the value of the asset excluding VAT. VAT is thus payable on each rental as it falls due. Hire/lease purchase on the other hand requires VAT to be paid up-front with the first rental as from an accounting perspective, the asset is treated as being owned by the lessee from day one.
Direct debit is the preferred payment method, however it may be possible to request an invoice only arrangement. The rental would increase on an invoice only arrangement to cover for the additional administration required.
Should you wish to keep use of the equipment at the end of the lease period you can do so at a greatly reduced cost. However, should the equipment be ‘out of date’ at this point and you don’t wish to keep it, you can simply look to replace it and commence another lease.
The flexibility of the lease contract means that you can add to or change equipment on lease as and when you need to. The new equipment may be added to an existing arrangement or you have the option to run another lease alongside the original that finishes at the same time.
Absolutely not. All of your other credit lines will remain intact and free for use when you may need them more.
As with all finance agreements, there will be an administration fee payable along with your first rental. This covers the leasing companies’ costs of setting up the facility, processing paperwork etc. Without the fee, they would simply need to charge higher rentals to cover their costs.
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