How we can help

Leasing is one of the best ways of ensuring your business always has the most up to date equipment. Amounts from as little as Rs. 100,000 can be funded. A wide range of equipment can be financed, from computers and software, through shop fittings, to plant and machinery. Let us know your need and we will find the solution.

How leasing works

Leasing enables a user of equipment to benefit from its use whilst paying for it. It enables the supplier to generate more profitable sales.
Between 1990 and 1997 leasing and hire purchase rose from 16% to 27% of small business lending.

Other benefits

.Additional line of finance
.Rentals are tax deductible
.Payments spread over 3 to 5 years
.Fixed interest rate, so you can budget exactly
.Does not use working capital
.The supplier gets immediate payment in full, so they may give you a better price

For & against leasing

. Medium term debt at fixed rates
. No need to make up front payments
. Flexible repayment arrangements at the outset - rental payments can be tailored to expected cash flows
. Finance is outside bank overdraft arrangements.

Lease purchase (hire purchase)

Purchase of the asset is included in the price of the last payment under the agreement.
Tax is allowable on interest element of rental, with writing down allowances available on the capital element.
The asset is included in the balance sheet.

What hire purchase costs?

Fixed or floating rates Repayment spread over 1-7 years or the life of the asset.

Operating lease

This is off balance sheet finance Many companies use it as contract hire for motor vehicles Otherwise, it is generally used by local authorities.

Sale and leaseback

Leasing can be used to refinance some existing assets and so liberate cash for the business. This is useful when assets are well written down in the balance sheet.

How we can help

This is a competitive market place, with different lenders in different market sectors We will introduce you to quality lenders with competitive packages.

Guide to Leasing / Hire Purchase

How does it work?

You (the lessee) buy the equipment from the supplier and then we lease it to you (the lessee). When you sign the corresponding lease or hire purchase agreement, we pay the supplier, who, having been paid, supplies the equipment, and we start to charge you monthly or quarterly payments over 12/24/36 etc. months, via direct debit.

What are the differences between leasing and hire and hire purchase?

TAX - Both finance methods provide you with savings to offset against your year-end taxable profits.
With HP, you can claim 25% of the equipment cash price in the first year, then 25% of the balance (75%) in the second year, and this continues on a reducing balance basis each year. With leasing, all the lease payments you make in the financial year can be offset against your taxable profits for that year.
Leasing can therefore be more tax efficient in the short term, because you get back 100% of the benefits available to you over the period of the lease, usually two or three years.
On the other hand, if you make a sizeable purchase near your year-end, then hire purchase might be more tax efficient for you.

OWNERSHIP

At the end of a hire purchase agreement, title to the goods passes to you for a small transfer fee, usually Rs. 5000 - Rs. 10000. At the end of a lease you generally have two options:-

1. To continue leasing, but on an annual basis and for an annual cost approximately 2% of the original price, or
2. You can sell the goods on behalf of the lessor who lets you keep 85% to 95% (it varies according to the lessor) of the sale proceeds. There is nothing to stop you selling to a third party and then re-purchasing the equipment subsequently, giving you title to the goods at a token net cost to you.

Do I have to be a limited company to qualify for leasing?

No, we can finance any business or organization whether sole trader, limited company or PLC, partnerships, trusts, etc.

What information do we have to supply to the leasing company?

The leasing company (lessor) needs to be convinced that you are likely to pay your installments every month, on time, for the term of the lease (say 3 years). If you have been established for several years, trade profitably and do not have excessive debt, then a brief profile of the company's history and activities, plus copies of the most recent year-end accounts is enough. If you are a start up, or relatively new in business and therefore do not have a business track record, then we need to profile you in much more detail - business plans, Cvs, home addresses of directors, references, etc.

Can I include other equipment from several different suppliers in one lease?

Yes

Can I lease second-hand equipment?

Yes

Can I raise some cash by re-financing equipment I already own?

Yes, but it depends on the age and type of product. If less than 3 years old, and with a good re-sale value, usually we can organize this.

How long does it take to organize leasing or H.P.?

Anything from one day to two weeks, depending on the strength of your business and how up-to-date your financial records are.

What down payment /deposit will I need to pay?

It depends on your preference and the Lessor's opinion of your financial status. We can often provide no deposit - nothing to pay for up to three months - finance but either one month or three months' installments is the usual minimum.

How can I raise a deposit, if it is required?

Borrow from your bank (and we brief you on how to approach your bank) or add it to your mortgage, or we can often re-finance your own equipment to generate cash.

What happens at the end of my lease?

One of three options:

* 1. "Secondary rental". At the end of the lease (known as the primary rental period) you can continue to lease for a 'low cost' secondary rental, which is yearly and has an annual cost about 2% of the original cash price.
* 2. As described earlier, you cannot be seen to purchase the goods from the lessor, because this infringes Inland Revenue regulations. However, most lessors include a "sales agency" clause in the contract, which appoints you as their agent to sell the goods on their behalf and they let you keep about 90% of whatever price you get. If you sell to a third party and then re-purchase from them, you would gain ownership of the equipment.
* 3. You return the goods to the lessor and stop paying for them.
*N.B. Never sign any lease agreement that does not have (1) or (2) clearly stated in the Terms and Conditions.

If I need the equipment very quickly to meet a contract deadline and you cannot arrange the finance in time, what can we do?

Pay for the equipment in cash, which we will refund to you when the lease is organized.

What lease payment terms are available?

Standard payment terms are monthly or quarterly in advance. Over 3 years for example, it could consist of 12 quarterly payments (one quarter due on signing the lease following at 3 monthly intervals by 11 more quarterly payments; or a 3 + 33 profile, the initial payment being 3 months lease rentals followed at monthly intervals by 33 more payments. We can usually tailor the payment schedule to meet your cash, budget or tax priorities, for example:- an 18 month lease to match the income from an 18 month contract you have won; payment "holidays" for the one or two months in a year when business is slack; payments higher (or lower) in the first year than the second year of a lease; deferring the VAT on hire purchase as already mentioned; install now - pay later, so you can generate income from the equipment before you start to pay for it.
The minimum finance period is six months, commonly two or three years, sometimes five years if the equipment has a long working life.

What are costs of leasing and hire purchase?

The interest rates depend on several factors such as the purchase price of the goods (below Rs. 500,000 the rates are higher than for purchases over, say Rs. 500,000) and your credit status. The monthly or quarterly costs also depend on whether or not you pay a deposit and whether you finance the balance over, e.g. 21, 23 or 24 months in the case of a two year lease. As a rough guide, every Rs. 1,000 of equipment @ 8% pay costs 90 / 48 / 33 / 28 /22 per month over 1/2/3/4/5 years respectively. For example, Rs. 23,600 + tax = 23.6 x 33 = Rs. 780 approximately / month over 3 years.

Can I settle early?

Yes, without penalty, but it is generally not an efficient use of your case because you will be paying off interest charges. If you start to earn lots of cash, this usually means a subsequent tax bill and leasing / HP is a good way of reducing your taxable profits so the cash can be used for something else, not paying off leases.

Leasing & Hire Purchase

What Are the Principle Advantages and Disadvantages?

Hire purchase and leasing can provide considerable benefits to businesses, but they are not necessarily suitable for every business or for every purchase. There are a number of considerations to be made.

Certainty

A hire purchase or leasing agreement is a medium term facility that cannot be withdrawn, provided the payments are made. The uncertainty that may be associated with facilities such as overdrafts, which are repayable on demand, is removed. However, both hire purchase and leasing agreements are long term commitments and it may not be possible, or could prove costly, to terminate them early.

Budgeting

The regular nature of the payments and their usually fixed amount helps a business to forecast cash flow. The business is able to compare the payments with the expected revenue and profits generated by the use of the asset. If, however, you wish to alter the payment frequency or amount, this will have to be agreed in advance with the finance company.

Fixes Rates

In most cases the payments are fixed throughout the hire purchase or lease agreement, so a business will know at the beginning of the agreement what their repayments will be. This can be beneficial in times of low, stable or rising interest rates but may appear expensive if interest rates are falling. On some agreements, such as those for a longer term, the finance company may offer the option of variable rate interest. In such cases, rentals or instalments will vary with current interest rates; hence it may be more difficult to budget for the level of payment.

Security

Under both hire purchase and leasing, the finance company retains legal ownership of the equipment, at least until the end of the agreement. This normally gives the finance company better security than lenders of other types of loan or overdraft facilities. The finance company may therefore be able to offer better terms. The decision to provide finance to a small or medium sized business depends on that business' credit standing and potential. Because the finance company has security in the equipment, it could tip the balance in favour of a positive credit decision.

Maximum Finance

Hire purchase and leasing could provide finance for the entire cost of the equipment. There may however, be a need to put down a deposit for hire purchase or to make one or more payments in advance under a lease. It may be possible for the business to 'trade-in' other assets which they own, as a means of raising the deposit.

Use of Resources

If small and medium sized businesses wish to rely on a mix of finance, hire purchase and leasing can extend the range of facilities available and give them access to medium term finance. It is, however, important to weigh up the interest and other costs of the different forms of finance available, against the benefits provided. Hire purchase and leasing remove the need to tie up resources in capital equipment, by spreading the cost and timing of the expenditure to coincide with the expected future revenue flows of the business.

Tax Advantages

Hire purchase and leasing give the business the choice of how to take advantage of capital allowances. If the business is profitable, it can claim its own capital allowances through hire purchase or outright purchase. If it is not in a tax paying position or pays corporation tax at the small companies' rate, then a lease could be more beneficial to the business. The leasing company will claim the capital allowances and pass the benefits on to the business by way of reduced rentals.

Leasing - What Types Are There?

Finance Leasing

The finance lease or 'full payout lease' is closest to the hire purchase alternative. The leasing company recovers the full cost of the equipment, plus charges, over the period of the lease. Although the business does not own the equipment, they have most of the 'risks and rewards' associated with ownership. They are responsible for maintaining and insuring the asset and must show the leased asset on their balance sheet as a capital item. When the lease period ends, the leasing company will usually agree to a secondary lease period at significantly reduced payments. Alternatively, if the business wishes to stop using the equipment, it may be sold second hand to an unrelated third party. The business arranges the sale on behalf of the leasing company and obtains the majority of the sale proceeds.

Operating Leasing

If a business needs a piece of equipment for a shorter time, then operating leasing may be the answer. The leasing company will lease the equipment, expecting to sell it second hand at the end of the lease, or to lease it again to someone else. It will, therefore, not need to recover the full cost of the equipment through the lease rentals. This type of leasing is common for equipment where there is a well-established second hand market, such as cars and construction equipment. The lease period in this case will usually be for two to three years, although it may be much longer, but is always less than the working life of the machine. The business would not enter an operating leased asset on its balance sheet as a capital item.

Contract Hire

Contract hire is a form of operating lease and it is often used for vehicles. The leasing company undertakes some responsibility for the management and maintenance of the vehicles. Services can include regular maintenance and repair costs, replacement of tyres and batteries, providing replacement vehicles, roadside assistance and recovery services and payment of the vehicle licences.

Equipment Types

What Are Suitable for Hire Purchase and Leasing?

Most items of equipment in normal use within the business or industrial environment may be obtained through leasing or hire purchase. Equipment can cost as little as a few thousand pounds, or more than £100 million in the case of some major industrial plant.

Some typical items are listed below.

a.. Plant and machinery
b.. Business cars
c. Commercial vehicles
d. Agricultural equipment
e. Hotel equipment
f. Medical and dental equipment
g. Computers, including software packages
h. Office equipment

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