A finance lease is a type of asset financing, where equipment is leased over an agreed amount of time, usually based on a full pay-out agreement. This means that the total sum of the rentals covers the full cost of the equipment, as well as interest.
This allows the business to split the payments over the term of the lease, avoiding a large upfront outgoing. This type of finance also provides flexibility at the end of the lease agreement.
With a finance lease, the provider owns the equipment and hires it out to the business. However, the business takes on the risks of ownership for the duration of the lease, such as maintenance costs.
With a finance lease, the leaser buys the asset your business needs, and you get access to it straight away.
You’ll have access to the asset over an agreed lease term, during which you’ll make fixed monthly payments that cover the full cost of the asset, plus interest.
With a finance lease, the leasing provider owns the equipment and hires it out to the business. However, the business takes on the risks of ownership, such as maintenance costs.
The initial lease term usually covers at least 75% of the time the asset is expected to be used for, known as its useful lifespan. During this period, it shouldn’t need repairing or replacing, although as mentioned above, you will be responsible for any maintenance that is required.
Once the initial lease period comes to an end, the business will have the flexibility to choose what happens next. This usually involves extending the lease and continuing to use the asset, returning the asset to the lease provider, or making a final payment to own the equipment outright.
Finance leasing offers a number of benefits, including:
Of course, as with any type of asset finance, if you’re considering finance leasing, it’s important you’re aware of any potential downsides, including:
Finance leases can be used to fund a range of assets, including:
One of the benefits of a finance lease is that the business has a degree of flexibility at the end of the term. They can typically choose to:
Hire purchase is another type of asset finance. Although hire purchase has similarities to a finance lease, with this type of financing, you buy the asset you need and pay for it in instalments. When the agreed term comes to an end, you’ll own the asset.
The key differences between hire purchase and finance leasing are:
A finance lease is one of many different asset financing solutions. The best type of lease for your business will depend on a number of factors, including the type of assets involved, whether you want to own the asset outright, your long term plans, and your financial situation.
At CHG-MERIDIAN, we offer various asset financing solutions, including finance leases for life long assets such as IT and medical equipment. To find out more about our equipment leasing services, please get in touch.
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Vice President Sales UK/Ireland