Definition of an operating lease
“An operating lease is a means of acquiring an asset for use without buying it, by making regular monthly payments to a finance provider. Unlike a finance lease, an operating lease usually runs for less than 75% of the asset’s useful life and all the ‘risks and rewards’ of the asset remain with the lessor.”
If your company relies on cutting edge technology, or business-critical equipment, and you don’t want to carry the burden of up-front outlay, insurance payments or maintenance costs, an operating lease is probably the best option for you.
How an Operating Lease Works
Like a finance lease, an operating lease on a high value asset, lets you use the item immediately and rather than paying for it upfront, you make regular lease or rental payments. Unlike other types of asset finance, an operating lease bundles up insurance costs and maintenance costs in the monthly fee so you have no other outlay on the item. If you take out an operating lease, ownership of the item remains with the lender, even at the end of the agreement, and the term is normally less than three quarters of the asset’s useful life.
Why Choose an Operating Lease?
If you only need the asset that you are buying on a relatively short-term basis, or if it’s likely to become obsolete and need updating very quickly, then an operating lease might be the right choice for your business..
If the equipment or machinery is business critical, an operating lease can be a big bonus because, unlike a standard finance lease, you won’t bear the brunt of repair costs or insurance fees.
There are tax and VAT benefits to taking out an operating lease too – you can normally offset the monthly payment against taxable profits, and if the asset is solely for business use, VAT is usually fully recoverable.
Asset finance is secured against the item itself so even if you don’t have years of trading history under your belt, an operating lease on equipment could still be an option.
Whatever equipment or machinery you need from computers to horse boxes, or coffee machines to photocopiers, if you want the asset without the burden of capital expenses, insurance or maintenance costs, talk to us about an operating lease.
An operating lease is ideal when you need high-value assets but don’t want to bear the brunt of repair costs, insurance or initial outlay. Some of the solutions we have found include:
- Operating leases on manufacturing equipment
- Operating leases on point-of- sale technology