What is Finance Leasing?
Finance leasing involves the funder (the lessor) buying an asset or equipment on your behalf, the user (or lessee).
In exchange for the hire and use of the asset, you will be charged rental fees. These rentals can be paid monthly and can be tailored to support a healthy cash flow. This makes finance leasing a particularly effective finance solution for SMEs.
While the funder retains ownership, you are offered exclusive use of the asset in accordance with the agreed terms of the lease.
Businesses want to maximise the use of their equipment without being subjected to the responsibilities of full ownership and finance leasing is an ideal solution.
All businesses require a healthy cash flow to fund growth and to make regular payments, such as supplier transactions or staff wages. With this in mind, businesses need to avoid large expenditures and cash outflows where possible. Finance leases allow businesses to spread the cost of the investment over a number of years, preserving vital cash flow.
Frequently Asked Questions
1. Are there tax benefits associated with leasing?
Yes, all finance lease rental payments are tax deductible against profits and therefore attract tax relief for the full duration of the lease agreement.
An example for illustration purposes only – please contact your accountant to find out how this can reduce your overall tax bill.
Asset Invoice Amount
Actual Term Rental
2. How do I make my payments?
Payments are made by Direct Debit.
3. Do my payments increase if inflation increases or interest rates rise?
Your payments are fixed and therefore unaffected by interest rate rises.
They would be subject to any changes in VAT/ corporation rates.
4. What happens at the end of a leasing contract?
What happens at the end of the primary finance lease period depends on the terms of the lease agreement. Options include:
- Return the equipment and make no further payments (vehicles have no charge for excess mileage)
- Upgrade the equipment and get new technology into your business
- Continue payments and extend usage of equipment
- Purchase of Vehicle title – typically 3 or 4 Monthly Rental payments depending upon the vehicle.
5. Do I have to use Purchase It’s Finance Partners?
Purchase It has long standing relationships with our finance partners. When you place an order through Purchase It, we are effectively extending credit to the finance partner until delivery. As such, we are careful who we partner with. As a customer you are under no obligation to use our finance partners. If you want to choose another form of borrowing or funding, you a free to do so. You must use the ‘Sale and Leaseback’ method.
6. What is Sale and Leaseback?
A sale and leaseback is where you buy pay for the equipment/assets in full at the point of order. Once the product has been delivered, you typically have up to 6 months from delivery to convert this to a finance lease agreement with a provider of your choice.
This allows your business to receive a cash injection and valuable working capital.
7. How do I pay by lease on Purchase It?
There are only certain products that funders will provide leasing for. For example, you can’t lease uniform. You need to create a separate basket that only includes the products you wish to lease. At the checkout, choose the ‘Payment by lease’ option. The funder will then contact you directly.
Once the funder has all of your documentation, it typically takes 2-3 working days to get a facility in place. Please note, these time scales are pre-Covid-19 so you should allow more time.
Please also note, Purchase It will not see any information that you provide directly to the funder. This information is private to you and covered under the Data Protection Act.
Once the funder has a lease facility in place, they will then provide the paperwork to Purchase It. Only at this point will your order be processed, and the lead time begin.
8. What information will the funder need?
Due to Covid-19, there is additional information that the funder requires. Please be aware, the information needs to be up to date at the point of providing it to the funder or it will be rejected and will delay your application.
The information required is:
- Confirm the trading entity details.
- Confirm all Directors full names, dates of birth, home address details and permission to search. Also list any buy to let properties the Directors own including the addresses and rough values/ equity
- Complete the attached Coronavirus form.
- Complete the attached Personal Asset Form for all Directors.
- Provide a basic CV with the background of the Directors/ Partners/ Sole Traders.
- Provide a copy of the Business plan. The business plan should cover the following possible topics - Executive Summary: Business details, Key personnel, Vision: The business idea, Business goals and development plan, What the business does, What makes the business different, Legal requirements Sales and Marketing: Market research, Profiling customers, Profiling competitors, Market Analysis, Pricing Operations and Management: Staff, Premises, Equipment, Managing operational risks.
- Provide a copy of the financial forecasts.
- Provide a copy of the franchise agreement if available.
- Provide a copy of the last full 3x months business bank statements bank statements right up to date Inc. last 24 hours.
- Provide a copy for both Directors of the last full 3x months personal bank statements. Bank statements must be right up to date Inc. last 24 hours.
- Confirm how much has been invested to establish the business and where these funds have come from such as savings or bank loan.