Of all the ways a UK business can fund equipment, the finance lease is the one we arrange most often. It is also the one most commonly misunderstood, usually because it gets lumped in with hire purchase or confused with ordinary renting.
Here is what a finance lease actually is, who it suits, and where it does not fit.
What a finance lease is
In a finance lease, the lender buys the equipment you have chosen and you use it for an agreed term in exchange for fixed monthly payments.
The lender holds legal title throughout. You get full use of the asset for the whole of the primary term, and on your balance sheet and in your day to day operations it behaves like your equipment, because in every practical sense it is.
The key difference from hire purchase is ownership at the end. With hire purchase you are buying the asset in instalments and it becomes yours when the final payment clears. With a finance lease you are paying for the use of it, with options at the end rather than automatic ownership.
It is also not the same as a contract hire or operating lease, where the funder carries the residual value risk and takes the asset back as standard.
Why businesses choose a finance lease
Four reasons come up repeatedly.
Working capital stays in the business. This is the main one. A business that spends £60,000 on equipment has £60,000 less to spend on stock, staff, marketing and the unexpected. A business that leases the same equipment keeps that cash available and pays a predictable monthly amount from the revenue the equipment helps generate.
The payments are fixed. You know exactly what leaves the account each month for the term of the agreement, which makes forecasting far more honest than a variable facility.
The tax treatment is usually straightforward. Finance lease payments are normally treated as a business operating expense and deducted against taxable profits. Hire purchase works differently, through capital allowances on the asset. Your accountant should confirm the position for your business, but for most companies the lease route is simpler to administer.
Upgrading is easier. Because you are not locked into ownership of an asset that will date, a finance lease suits anything with a predictable technology cycle.
Available for equipment of almost any value
There is no upper limit on what can be funded this way. We arrange agreements on single items worth a few thousand pounds and on full fit-outs running well into six figures.
The deciding factor is not the price tag but whether the asset is identifiable, has a useful working life and holds some resale value. That covers the overwhelming majority of business equipment: commercial kitchens, workshop and garage equipment, gym equipment, medical and dental, laundry, IT and audio visual, manufacturing plant, refrigeration, EPOS. Our what can be financed section lists the sectors in full.
Several items can usually sit under one agreement, which keeps the administration and the monthly figure manageable.
Where a finance lease is not the right answer
It is worth being straight about this, because the wrong structure costs money.
If you intend to keep the asset for its entire working life, hire purchase is usually the better fit. Think extraction systems, heavy plant, built-in refrigeration, anything that will still be earning in fifteen years. Paying for use of something you are never going to give up is the wrong shape.
If you need working capital rather than a specific asset, a lease is not the tool. An unsecured business loan or asset refinance against equipment you already own will serve you better.
And if the asset has no meaningful second-hand value, lenders will be harder to find whatever structure you propose.
What happens at the end of the term
This is the part worth understanding before you sign rather than after.
At the end of the primary term you generally have options: continue to use the equipment on a secondary rental, which is typically a nominal annual amount, or arrange a sale of the asset to a third party, where you would normally receive the bulk of the proceeds as a rebate of rentals.
The precise mechanics vary between lenders, which is one of the practical advantages of going through a broker. We can tell you how a particular funder handles end of term before you commit, rather than you discovering it three years in.
Getting a decision
As a credit broker we take your application to a panel of over 200 lenders plus our own in-house facility, and look for the ones whose criteria you genuinely fit rather than pushing you at a single funder.
Straightforward applications usually come back within 24 hours. Documents are signed online through our e-sign process, and funds are normally paid directly to your supplier.
Newer businesses are not automatically excluded. Specialist lenders look at the operator, the trading and the asset rather than demanding three years of filed accounts, which is covered on our start-up funding page.
Run the numbers
Our calculator will give you an indication of monthly costs over different terms, and our advantages of leasing page goes into the wider benefits.
If you have a purchase in mind, get in touch and we will tell you which structure actually suits it.
Business finance only, subject to status. Complete Leasing Solutions Limited are authorised and regulated by the Financial Conduct Authority (FRN 683991) and are permitted to act as a credit broker.