Equipment leasing is quite simply the process of acquiring equipment and technology via third-party finance and paying for it in manageable monthly amounts over a pre-agreed term.
Equipment leasing allows any type of business to affordably acquire business-essential equipment and technology without the upfront expenditure. Leasing enables the business to preserve their cash-flow and put their reserves to much more profitable uses, such as investments, hiring sales staff and growing the business through marketing.
Leasing spreads the cost of equipment from anything between 12 and 84 months, and so the cash impact is far less versus buying outright. It also enables businesses to upgrade to better, more advanced technology, as the more budgetable repayment means companies are less likely to cut corners or opt for cheaper alternatives.
Many profitable businesses choose to upgrade their equipment, assets and technology via equipment leasing because it offers tax advantage over buying equipment outright. A pure lease rental agreement is 100% tax deductible due to it drawing upon a company’s operating budget, as opposed to it’s capital budget.
So how does Equipment Leasing work?
Equipment leasing is like a loan, only the loan is secured by the assets a company has acquired, which allows for a lower rate of interest. The equipment on lease is purchased by the third-party finance company and rented to the business, so the risk to the lender is far lower than a loan, as the equipment could be recovered and sold if the customer wasn’t to keep up their contractual obligations.
What is the Process of Acquiring Equipment via Leasing?
Usually the procurement process is the same as with a cash purchase. The business would establish their need by either researching the market or working closely with a new or existing supplier. Once the equipment need has been established, the business would request a lease option and the supplier provides a range of monthly options.
If the supplier has a leasing Partner in place then they will be able to offer you a range of payment options almost instantly, including monthly, quarterly, and tenures from 1 – 8 years.
Note, terms and pricing may differ per equipment type, as some technologies have a shorter shelf-life than others (for example, mobile phones versus solar panels).
If the supplier does not have a Leasing Partner then the business would refer to their own banking options, or contact a leasing specialist such as Lease Group, who will provide monthly payment options based on the value of the sale.
Once a price and payment term has been agreed by the business, the Supplier or business then submits a formal lease application via the appointed leasing or banking incumbent.
At this point, the finance company performs a credit approval process to establish if the business has sufficient financials to support the lend. This process can take as little as 10 minutes, but can take up to 48 hours for higher values or more complex requirements.
If the business passes credit approval, finance documentation is emailed to the business for signing. The documents are typically raised and issued within an hour of the approval, with most applications being processed via digital signature.
Once the finance documentation has been reviewed and signed by the business, the supplier is then instructed to deliver the equipment and perform any associated installations.
Once the business is satisfied that all of the equipment has been delivered, and is installed and working, the supplier is paid for the sale and the lease payment cycle begins until the end of the contracted term.
For a complete end-to-end overview of the Equipment Leasing process, download our latest guide: The Equipment Leasing Process Explained.