We offer flexible finance options and leasing so you can benefit immediately from our State-of-the-Art Products at affordable prices.
What is a Lease?
A famous quote by Donald B. Grant says, “Why own a cow when the milk is so cheap? All you really need is milk and not the cow.” The concept of Leasing is influenced by this quote. We can compare ‘milk’ with the ‘rights to use an asset’ and ‘cow’ with the ‘asset’ itself. 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.
What is the purpose of Leasing?
The purpose of choosing a lease can be many. Generally, a lease is structured for the following reasons.
The tax benefit is availed to both the parties, i.e. Lessor and Lessee. 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.e. lease rentals as an expense and achieve tax benefit in a similar way.
Avoid Risk 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. A Lease is an off balance sheet item.
What are the advantages of Leasing?
One of the main decisions organisations often have to be make is whether to lease or buy office equipment. More and more businesses choose to lease office equipment whereas some still prefer to buy office equipment.
Let’s look at some of the advantages of leasing office equipment.
Lower Initial Expense
When leasing is considered, there is no initial down payment required where a lot of money can be saved.
The other main advantage of leasing is that it helps you use more cash for other areas of business such as inventory and marketing.
By leasing office requirements, you are able to access leading and cutting edge equipment for use. The world is now a place where technology is constantly being updated, by this way, there are updated models of desktop printers, photocopiers and business software solutions.
A lease agreement can be signed and state of the art equipment can be installed when old ones are outdated. By this way, you are balanced with your competitors who possess a deep pocket in their business.
Predictable Monthly Expense
By leasing office equipment, you will have a fixed monthly expense in your budget by which you can budget in a more efficient way, retaining valuable cash resources to help develop and grow your business in other areas.
Leasing new equipment is easier than applying for a loan. When applying for the capital equipment loan, banks usually demand for 3 years financial records. This is a tough task for new business starters. Banks do not offer loan for businesses that haven’t been running for 2 years. Hence leasing for office equipment is considered the best choice.
One of the main benefits of leasing, most business people consider is that they are perfect tax savers. Lease and finance payments can be deducted easily as business expenses.
Balance Sheet Benefits
Any capital allowances are passed on to you and lease payments can be offset against taxable profits. VAT can also be reclaimed on monthly payments. This status as a “lease” as opposed to a “liability” on a company’s balance sheet is something the banks like to see, which is why an operating lease can be attractive.
If you would like to find out more about leasing, why not Contact Us today and ask about the low rate, finance options available to help your business grow.