An operating lease is a lease which provides
an asset to the customer for an agreed period in return for repayments which in most cases are significantly lower than other
finance methods.
The lower repayments are achieved
by the finance company taking an asset risk (residual value) at the end of the agreed period.
At the end of the agreed period, our customer usually has three options:
- The equipment can be returned to the finance company without any further
obligation.
- The customer can extend the lease for a further specified period of time and usually
benefit from a reduced payment.
- The customer can purchase the equipment at an agreed price.
The main features of this approach are:
- The use of the latest technology without ownership.
- The equipment does not show on the balance sheet.
- There’s no residual value risk
for customer.
- Repayments are subject to VAT.
- There is ‘end
of term’ flexibility to extend, return or purchase the equipment.
The benefits of this approach are:
- Low
repayments enabling customers to enhance their cashflow, re-invest savings and more efficient budgeting.
- The ability to match repayments to anticipated equipment usage or length of a particular contract.
- The rental cost is deductible against income tax.
- Enhance financial ratios on the customer's
balance sheet (subject to auditor's approval).
- No risk of depreciation or disposal concern.
