Leasing can be a very useful way for businesses to acquire equipment and goods. The main reason is that you don't have to find all of the money at once to pay for your equipment upfront, thereby conserving your cash. This is particularly important for start-ups and growing businesses, where finances can be stretched. “You can buy at today's prices with tomorrow's income,” is how the some in the industry phrase it. And, even if that sounds a little bit cheesey, there is something to be said for this point of view.
Types of leasing
There are three basic forms of leasing: hire purchase, finance lease and contract hire. Each of these have advantages and disadvantages, which you need to consider before you sign the deal. With hire purchase deals for instance, you will not own the asset until the final payment has been made. So if you were to default on just one payment (even the final one) you could lose the equipment and not be able to get a refund on the monies paid previously. Contract hire has its advantages for short-term needs but can become expensive if you repeatedly hire out the same equipment. Whereas, leasing is beneficial, although can be expensive and often involves additional charges.
The term of the lease can match the lifetime of the asset. Therefore a loan for a desktop computer can be structured to match its useful life, which might just be for a few years. The leaser may then have the option of upgrading to a newer model.
Rather than trying to find the money in one lump sum, you can pay for the equipment over the whole period that you use it. Also, unlike an overdraft there is no possibility of being forced to repay early and, generally, the agreements are set up with a fixed rate of interest so you won't get any nasty shocks if interest rate rises. So, cashflow planning is much more reliable.
Industry insiders describe it as flexible finance, flexible on terms, on repayment periods, patterns and prices. Indeed there are many different options available to business and there a amount of different things you can obtain through leasing.