Introduction

There are two main ways a business can acquire equipment: buying outright, or leasing. Buying outright can be suitable if it is necessary to own the equipment, but will have a negative effect on cashflow. Leasing allows a business to use the equipment over a fixed period in return for regular payments. The business will have more cash, but because interest is charged on the instalments, the equipment will cost more in the long run.

Key Tips

If you are considering leasing equipment, there are broadly three ways this can be done:

• Finance leasing – a long term lease where a business will pay for the equipment over the lifetime of the loan. You usually do not need to return the equipment at the end of the loan, but it is usually your responsibility to ensure that you maintain and insure the equipment.
• Operating leasing – usually used for more expensive equipment, which you don’t need for the entire life of the asset. The leasing company will usually take the equipment back at the end of the loan, but it will usually be responsible for maintaining and insuring it.
• Contract hire – usually used for assets such as company cars. The leasing company will take some responsibility is maintaining and servicing the asset.

If you are considering buying equipment, there are several advantages to this:

• You are treated as the owner of the asset for tax purposes, and therefore you can claim capital allowances;
• You are not tied to long-term leasing agreements;
• You will pay less overall for the asset compared to leasing it.

There are however several disadvantages to buying equipment:

• Your cashflow will be negatively affected because you have to pay upfront for the asset;
• You may end up buying equipment that you don’t need;
• You won’t be able to deduct the cost of leasing from your taxable income;

Specialist Finance

Informed Funding largely covers a very broad range of finance and suppliers of finance that you may not have heard of. If you are looking particularly for Funders that provide Asset Finance, then have a look at our Asset Finance section here. Otherwise, you could find a funder that is more suitable for you by using our general search tools here.

The information contained within this note represents just one set of views when it comes to a buying equipment. No responsibility is accepted by Informed Funding for any losses or profits foregone by acting on or refraining from acting on any information contained within this note or any other information to which this refers. Before making any decisions concerning the financing or accounting of your business or enterprise, you should consult a professionally qualified accountant or other appropriate individual.

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