Leasing and hire purchase are both forms of asset finance that can be used to acquire assets for the business. This a low-risk form of debt finance that is often used if the business requires new equipment, which would otherwise be unaffordable due to cash-flow constraints.
A famous quote by Donald B. All you really need is milk and not the cow. Ultimately, a person who wants to manufacture a product using machinery can get to use that machinery under a leasing arrangement without owning it.
A lease can be defined as an arrangement between the lessor owner of the asset and the lessee user of the asset whereby the lessor purchases an asset for the lessee and allows him to use it in exchange for periodical payments called lease rentals or minimum lease payments MLP.
Leasing is beneficial to both the parties for availing tax benefits or doing tax planning. At the conclusion of the lease period, the asset goes back to the lessor the owner in an absence of any other provision in the contract regarding compulsory buying of the asset by the lessee the user.
There are four different things possible post-termination of the lease agreement. The lease is renewed by the lessee perpetually or for a definite period of time.
The asset goes back to the lessor. The asset comes back to the lessor and he sells it off to a third party. Lessor sells to the lessee. Purpose of Leasing The purpose of choosing a lease can be many. Generally, a lease is structured for the following reasons. Benefits of Taxes The tax benefit is availed to both the parties, i.
Lessor, being the owner of the asset, can claim depreciation as an expense in his books and therefore get the tax benefit. On the other hand, the lessee can claim the MLPs i.
Avoid Ownership and thereby Avoiding Risks of Ownership Ownership is avoided to avoid the investment of money into the asset.
It indirectly keeps the leverage low and hence opportunities of borrowing money remain open for the business. Advantages of Leasing Balanced Cash Outflow The biggest advantage of leasing is that cash outflow or payments related to leasing are spread out over several years, hence saving the burden of one-time significant cash payment.
This helps a business to maintain a steady cash-flow profile. Quality Assets While leasing an asset, the ownership of the asset still lies with the lessor whereas the lessee just pays the rental expense.
Given this agreement, it becomes plausible for a business to invest in good quality assets which might look unaffordable or expensive otherwise. Better Usage of Capital Given that a company chooses to lease over investing in an asset by purchasing, it releases capital for the business to fund its other capital needs or to save money for a better capital investment decision.
Tax Benefit Leasing expense or lease payments are considered as operating expenses, and hence, of interest, are tax deductible. Off-Balance Sheet Debt Although lease expenses get the same treatment as that of interest expense, the lease itself is treated differently from debt.
This helps in planning expense or cash outflow when undertaking a budgeting exercise. Low Capital Expenditure Leasing is an ideal option for a newly set-up business given that it means lower initial cost and lower CapEx requirements.
No Risk of Obsolescence For businesses operating in the sector, where there is a high risk of technology becoming obsolete, leasing yields great returns and saves the business from the risk of investing in a technology that might soon become out-dated.
For example, it is ideal for the technology business.
Termination Rights At the end of the leasing period, the lessee holds the right to buy the property and terminate the leasing contract, thus providing flexibility to business.
Disadvantages of Leasing Lease payments are treated as expenses rather than as equity payments towards an asset.Leasing and Hire Purchase are the most popular forms of Asset Finance in the UK. They allow businesses to acquire equipment, machinery and vehicles which would otherwise be unaffordable, or put a strain on working capital.
Hire purchase is a tripartite agreement involving the seller, finance company and the purchaser / hirer whereas Leasing is only a bipartite agreement, involving lessor and lessee. 3. Depreciation Claim. Leasing & Hire Purchase. Financing your dream.
Leasing & Hire Purchase. Finance your Dreams. Whether you’re just starting a business or running one, there has got to be a lot on your mind.
So let us help you in your decision, our leasing arm will help you finance the vehicles and machinery needed for your growing business. Expertise in. Leasing and hire purchase are types of finance used by businesses to obtain a wide range of assets – everything from office equipment to vehicles.
Leasing and hire purchase could be the perfect solution if you need new equipment which would otherwise be unaffordable because of cash-flow constraints. Nowadays, if you want to use an asset, you don’t need to purchase it from the seller. There are many offers whereby, you can use the asset just by paying the price for using it, such as Hire Purchasing and Leasing.
Leasing & Hire Purchase.
Financing your dream. Leasing & Hire Purchase. Finance your Dreams. Whether you’re just starting a business or running one, there has got to be a lot on your mind. So let us help you in your decision, our leasing arm will help you finance the vehicles and machinery needed for your growing business.