Eligibility

• Any commercial business - sole trader, partnership, limited company, plc, LLP’s etc.
• Trading for at least 18 months (start ups considered if sufficient security is offered).
• Clean credit files - no major CCJ’s.
• Financial accounts and bank statements show reasonably profitable performance and positive cash flow - if the company is constantly on its overdraft limit and losing money then it’s unlikely to be approved.

How it works

• Your business firstly has to be underwritten (approved) by a lessor (the lender) for the cost of the assets you want to buy.
• Once you are underwritten and have signed the corresponding lease agreement, the lessor pays your supplier who delivers the goods to you (note - several different suppliers and products can be financed under one lease agreement).
• You then buy the asset back from the lessor by paying him fixed monthly instalments, usually over three years.

 The benefits to you

• Easier cash flow, pay for the equipment out of the revenue / savings it generates.
• Doesn’t compromise your existing bank loan and overdraft facilities.
• Can be very tax efficient.
• Conserves your hard earned cash.  

The two common types of leasing attract the same rates of interest, are accounted for in the same way (as assets “on balance sheet”) and the lease agreements can be for either a finance lease or a lease purchase.

Lease purchase
Lease Purchase the same as domestic hire purchase, you pay all the vat upfront with the first instalment, then fixed monthly instalments for two or three years, after which title to the goods passes to you automatically.  

Finance lease
Finance Lease differs in the vat payment, tax treatment and ownership.

• The vat is applied only to the monthly instalment and so is spread over the two or three years, not paid upfront.
• Your business can claim all the monthly payments - not just the interest element - against the taxable profits in the year.
• Ownership is not automatic and involves a third party sale and buy-back.

Costs
As a guideline, every £1000 of product (exc. vat) will lease for between £32 and £38/month over 3 years, the exact cost depending on the type and cost of the asset being purchased, and the credit status of your business.

Assuming a “cost per thousand“ (industry jargon) of £34, a £12,000 + vat purchase would lease for roughly 34 x 12 = £408/m over three years:

A finance lease would involve 36 equal monthly payments of £408 + vat.

A lease purchase profile would be a first payment of £408 + vat of £2100 (total £2508) followed by 35 payments of £408

Which is best depends for you depends on your cash availability for the first payment and the your accountant’s opinion on the tax implications for your specific business profile.

Security
The lease debt is secured on the assets being financed but, depending on the type of asset and on your business credit rating, further security may be required, such as directors’ guarantees or second charges over property.