Residual Value leasing: The Advantages and Disadvantages

Companies can easily upgrade or replace assets as they need to when using residual value leases. This is particularly beneficial in industries where technology evolves rapidly, ensuring that businesses can stay competitive by using up-to-date equipment. There are also typically much lower upfront costs compared to purchasing assets outright, preserving capital and allowing businesses to allocate resources to other critical areas.

Lease payments can be treated as operating expenses, potentially offering tax advantages. These payments are deductible, reducing the overall taxable income of the business. Furthermore, residual value leases are often classed as off-balance-sheet financing. This means that the leased asset and corresponding liability do not appear on the company’s balance sheet, improving financial ratios and making the business appear more attractive to investors and lenders.

Since the lessor retains ownership, the lessee is not burdened with the risks associated with asset depreciation and obsolescence. This risk transfer can be particularly advantageous for businesses operating in sectors with high depreciation rates.

While residual value leases have lower initial costs, they can be more expensive over the long term compared to purchasing an asset outright. Continuous leasing without an end goal of ownership can accumulate significant costs. It’s a good idea to look at the total cost of a piece of equipment over its lifespan when comparing residual value leases to other forms of procurement. Residual value leases come with terms and conditions so there may be additional fees or penalties in case of early termination or breach of contract.

Leased assets might have limitations regarding customisation. This can be restrictive for businesses that need specialised equipment tailored to their specific operational requirements.

At the end of the lease term, the lessee doesn’t own the asset. For some businesses, this may not be a problem at all, however for those businesses that prefer owning their assets as a long-term investment, this may be a disadvantage.

CHG-MERIDIAN is a global provider of technology management and financing solutions that can assist businesses in maximising the benefits of residual value leases. Here’s how:

CHG-MERIDIAN offers tailored leasing options that align with the specific needs and budget constraints of each business. With our expertise, businesses can optimise their asset management strategies, leading to improved financial efficiency and operational performance.

From procurement to disposal, we provide comprehensive lifecycle management services, including asset tracking, maintenance and end-of-lease transitions. CHG-MERIDIAN is committed to sustainability, offering environmentally friendly disposal and recycling services. This aligns with CSR goals and helps businesses reduce their environmental impact.

If your business would benefit from leasing, get in touch with CHG-MERIDIAN today.