A comprehensive guide to leasing equipment for your business

07 June 2017

Leasing equipment can be a suitable option for businesses looking to update their technology without a large initial outlay. It’s particularly useful for small business owners looking to replace essential tools or upgrade existing equipment.

ome small business owners can be sceptical about this form of equipment procurement, however, due to the reduced ownership of the items. 

This in-depth guide explains the must-know facts about the equipment leasing process, helping you discover the benefits and drawbacks of leasing, and find out if it’s right for your business.

What is equipment leasing?

Equipment leasing allows companies to lease or rent equipment without the significant cost of buying new. Much like renting premises, lease holders pay a monthly fee for a set period. When the lease is up, you may have the option to purchase the equipment outright, extend your lease or go for an upgrade. 

It’s important to note that your lease agreement is likely to be with a third-party service and not provided directly by the equipment supplier.

leasing equipment

What kind of equipment can be leased?

Almost everything you need for your business can be leased. Products vary per company, but most leasing companies will offer leasing arrangements on various pieces of equipment, ranging from coffee machines and IT equipment to rolling roads and industrial washing machines. 

Leasing can be a safer option of acquiring high-risk equipment that is likely to need regular repairs. Depending on your agreement, your leasing company may also pay for general maintenance. 

Is leasing right for your business? 

Equipment leasing is not for everyone but it can be beneficial for small businesses looking to get started or for larger companies to keep up with new technologies without a significant cash outlay.

Leasing vs. Hire Purchase

They might seem similar, but there are a few important distinctions to be made.

Equipment Leasing: You pay a set monthly fee to rent equipment for the duration of your contract. When your contract ends, you do not automatically gain ownership of the leased equipment although you may be offered the option to purchase it, renew your lease or upgrade.

Hire Purchase: You pay an initial deposit followed by set monthly instalments. Once your balance is paid in full, you will own the equipment outright.

Leasing equipment

Benefits of Leasing

  • Up-Front Cost. Leasing requires no initial outlay so you won’t need to dig into your working capital or take out a loan.
  • Financial Planning. Leasing allows you to plan for the future because you already know what your equipment costs will be and interest rates are generally fixed for the term of your contract.
  • Tax Deductible. The cost of your lease can be deducted as a business expense.
  • Affordable Upgrades. It’s easier to keep up with the latest innovations in your field for a small adjustment to your monthly payments instead of shelling out upfront for new technology (upgrading can also be a drawback, see below).
  • Breakdown Cover. Your leasing company will cover breakdowns and repairs.
  • Hassle-Free Credit. It's generally easier to get approved for a leasing agreement than a bank loan.

Drawbacks of Leasing 

  • Price Premium. The total cost of leasing the equipment will probably be higher than the cost of buying outright.
  • Ownership. You don’t own the equipment at the end of your contract, although you might have the option to purchase it.
  • Personal Credit. Small business owners may be required to use their personal credit to secure the lease.
  • Long Term Contracts. In most cases, you’ll be locked into a contract which you’ll have to continue paying for, even if you no longer need the equipment.
  • Cost of Upgrading. If you do need to upgrade, you’re not in a great position to negotiate. If you think your equipment might be outdated before your lease is up, make sure you’re aware of your upgrade options beforehand or you could end up stuck with outdated equipment or worse, paying a premium for the latest model.

How to go about equipment leasing

Before you go ahead with an equipment lease, consider the following: 

  • How often will this equipment be used? Make sure your new investment will be worthwhile.
  • Is it cheaper to lease? Take a careful look at your books and compare the outright buying price with the total cost of your lease agreement. Remember, you won’t own the equipment at the end of your lease. It may be more cost effective to buy equipment outright that you are going to be using over the long term (over three years) or to consider looking at other lines of credit.
  • What will be the return on investment? Refer to your business plan and work out how much this piece of equipment will earn you in net profit against your leasing costs.
  • What are the maintenance costs? Although your leasing company may cover breakdowns and repairs, in most cases the business owner is responsible for general maintenance. Do your research in person and online by visiting professionals and searching forums. Even if you are already familiar with this type of equipment, the brand or model which you are looking at might have a reputation for being high-maintenance.

leasing equipment

To get the best deal, you’ll need to shop around.

Check out different finance companies, what leasing options they offer and which kinds of equipment they cover. 

Leasing options offered by equipment suppliers could actually be the best deal. Because companies want to maximise the sales of their equipment, the rate offered by their leasing partner could be more competitive than you think. 

If you’re a small or medium business owner, equipment leasing could be the cash-flow-friendly solution you need to keep your tech up to date and your company relevant. Just be sure to check that it will be cost effective for your business and shop around for the best deal.

Have you enjoyed reading this article? Then take a look at the rest of the Gazprom Energy blog, for more helpful guides for SMEs. Or, if you’d like to hear about our competitive energy contracts for small businesses, visit the homepage or call us on 0845 230 0011. 

The views, opinions and positions expressed within this article are those of our third-party content providers alone and do not represent those of Gazprom Energy. The accuracy, completeness and validity of any statements made within this article are not guaranteed. Gazprom Energy accepts no liability for any errors, omissions or representations.


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