One of the most financially challenging aspects for any business is the initial purchase of new equipment. For many, the option to invest outright in expensive equipment simply isn’t a viable option, particularly for smaller businesses or start-ups. Not only is buying equipment pricey – maintenance and upgrades can leave a significant dint in your capital when things go wrong or when keeping up with the latest technology.
Despite the advantages, many are unsure on how equipment leasing works or just how beneficial it can be. We’ve put together the ultimate guide on equipment leasing, and how it might be the perfect choice for your business.
- What is equipment leasing?
- Different types of equipment leasing
- What kind of equipment can you lease?
- How long does it take to arrange equipment rental?
- Are there tax benefits?
- Further benefits of leasing equipment
- How to choose the best equipment leasing company for your needs
- The pros and cons of leasing
What is equipment leasing?
To put it simply, equipment leasing allows a business to lease, use and operate the best equipment for their specific needs over an extended period of time, paid for in manageable monthly amounts, without the need to purchase outright.
HardSoft also offer shorter term hire solutions for when a longer term 3-year lease isn’t the best option for you.
Paying for the equipment monthly means you aren’t making significant investments into ever-depreciating assets, and instead are able to preserve your hard-earned capital to spend elsewhere within your company, helping it to grow and flourish.
At the end of your lease agreement, you can assess your organisational needs and decide on the best course of action for you, depending on what options your provider has to offer.
Solutions such as Flexi-Lease give you the option during your lease agreement to upgrade or change your technology, continue with your existing equipment if upgrades aren’t necessary, or cancel your lease early for a small fee.
Equipment leasing differs from equipment financing – a process in which you take out a business loan to purchase the equipment, paying off the loan over a fixed period with the equipment used as collateral. In this scenario, you own the equipment outright once the loan is paid.
As with a loan, interest and fees are taken into consideration when leasing equipment and are added into the regular repayments. You may encounter additional fees for insurance, maintenance, repairs and other related costs depending on your provider. With Hardsoft, our flexible DaaS (Device as a Service) solutions come with our very own full support wrapper, including deployment, pre-configurations and remote diagnostics to ensure you are fully supported throughout the entirety of your lease period.
Different types of equipment leasing
There are a number of differing agreement types to be aware of when looking to lease equipment:
Operating lease agreement
Operating leases (such as Opex) are a form of equipment leasing where the customer leases an asset from a third-party leasing company. Your business has the ability to use an asset for a designated period, without owning it. Typically, the lease period is shorter than the economic life of the equipment.
Equipment purchased through an operating lease cannot be listed as capital, as is required from an outright purchase or equipment acquired through a business loan. This has two significant advantages in that the equipment is not recorded as a liability or asset, and the equipment can qualify for tax incentives. Capital expense options (such as Capex) allow the business to pay upfront at the point of purchase in one single outlay, with any tax relief applied at this point.
Another example of a type of equipment lease contract is through a lease-purchase agreement. This typically involves the business who are leasing the equipment entering into an agreement to purchase the equipment at the end of the lease agreement period. This allows for the business to spread the cost of the equipment over a designated period of time, whilst having the payments made throughout the agreement counting towards the overall equipment purchase.
Closed-end and open-end leasing agreement
You may come across closed or open-ended agreements – open-end agreements involve smaller monthly fees, which end with a larger ‘balloon payment’ at the end of the lease period. While in the short term, this may be a viable option for those with limited cash flow, it can result in a larger financial impact at the end of lease period.
Closed-end agreements on the other hand mean that there is no obligatory payment required when the lease ends, meaning equipment can be given back without any hidden or additional costs to account for.
Device-as-a-service and Devices for Teams
It’s often the case that one size rarely fits all when it comes to IT equipment rental. That’s why we have fully flexible solutions, offering you the latest Apple and PC technology for whatever your business needs may be.
Devices for Teams (D4T) is a unique and flexible DaaS (Device as a Service) subscription, tailored for dynamic, high growth businesses. Here are just a few of the key benefits you can expect from our services:
- Operating leases with predictable monthly investment with flexibility to scale up and down as you need.
- The latest tech to meet the needs of your organisation, and your customers with a 360 degree Support Wrapped included for every device.
- Flexible subscriptions which adapt with your business needs.
- No more depreciating assets – choose to add devices throughout your agreement, and upgrade or change devices after just 12 months.
Full support package including configurations, delivery support and maintenance for every device.
What kind of equipment can you lease?
Whatever it is your business requires, the likelihood is you can lease it. From vehicles to coffee machines, treadmills to computers – there are lenders able to source the best technology for your needs.
Leasing provides more secure option for businesses acquiring high-cost, high-risk goods that are often prone to repairs, updates or upgrades. At HardSoft, we offer the latest Mac, PC and IT hardware/software to get your business off the ground, with dedicated aftercare, maintenance and upgrades built into your package support.
How long does it take to arrange equipment rental?
One of the key benefits of equipment leasing is the almost instantaneous access to the best tech to suit your needs.
Purchasing equipment outright can take time, not only for the procurement of goods, but also time taken to build up revenue in order to make a large purchase.
Renting equipment negates the need for a large cash lump sum, giving you access to whatever you need, whenever you need it.
With Hardsoft, we work tirelessly to ensure our D4T integrates seamlessly within your business. From initial contact, we’ll work with you to devise the best strategy to suit your individual business goals. After an initial conversation, we’ll set you up with all the information you need and a quote to takeaway.
Once your order has been placed, we work quickly and efficiently to ensure all of your quoted hardware and software is shipped via tracked Next-Day Delivery. We’ll deliver your leased equipment on a date to suit you. If you require assistance on delivery, our certified engineers will come to you, helping you to install and configure all of your devices, saving you time and effort.
It’s as simple as that!
Are there tax benefits?
HMRC agrees that ALL Leasing payments are 100% allowable against Tax.
Under an operating lease, you can claim full tax relief for the monthly rentals. Under a Finance Lease, you can claim full tax relief for the annual depreciation of the capitalised asset and finance charges.
Annual Investment Allowance is also a factor to be considered. This has a current maximum of £500000 annually.
Tax relief is available whether you buy outright, lease, or buy on hire purchase, it’s when that tax relief is given that makes a difference to businesses. When you lease computers, the tax relief is spread evenly throughout the lease term, whereas with an outright purchase the tax relief is given upfront but none over the following years.
In reality, you don’t save tax by leasing, but perhaps more importantly, you are able to defer and spread the tax you pay. It’s this even spread which makes leasing more attractive to SMEs because it means that financial planning is easier to manage. You can read more about the story behind tax deductible leasing and the key differences in finance leases, and operating leases on our blog. We also have a handy guide to explain leasing and taxation further, with a little help from our accountant.
Further benefits of leasing equipment
Taxation benefits aren’t the only positive factor when considering leasing equipment over purchasing:
Massive variety of equipment options
Modern day businesses need technology that is as varied and unique as they are. Needless to say, the requirements of you and your team may differ drastically. Leasing IT equipment provides you with a unique opportunity to tailor your equipment to suit the individual needs of you and your colleagues, ensuring that they have the most up to date tech at their fingertips, helping to foster a productive, happy and efficient team who aren’t bogged down with out-of-date hardware or software.
Not only does leasing provide you with the opportunity to provide your team with the best tech, it also opens up the door to personal device customisation, with individual builds and configurations taken into account – from different hardware integrations to configurations for network and security settings.
With D4T, our Apple-certified engineers are on hand to assist you when setting up our devices for the first time – a task that often at times can seem quite daunting, particularly when your teams needs differ from device to device. Our HardSoft engineers can custom-build each device, ensuring each is configured specifically for your requirements before delivery. We’ll also be on hand if you require us to install and set up your devices, so you won’t have to take any time out from your busy schedule.
Leasing and repairs
Often when you enter into a leasing agreement, there is a clause within the agreement which ensures that any necessary repairs are carried out at the expense of the leasing company. Whether you choose D4T, Flexi Lease or Pure Rental solutions, HardSoft offer technical support whenever you need it. With 3-year parts and labour warranty (including free collection and re-delivery), and accidental damage protection, you can be rest assured that your tech is fully covered.
Budget and financial benefits
When you lease equipment, massive upfront costs or monetary lump sums aren’t an issue. Leasing enables your business to benefit from the best technology, with regular payments to lighten the financial load, with no need to chip into your working capital.
A reduction in large-scale outgoings means you can effectively plan for your business’ future. Typically, interest rates are fixed throughout the term of your contract, so you’re always aware of your lease outgoings. This allows you to funnel your hard-earned capital back into your business, ensuring it’s continued growth.
An equipment lease differs from a business loan, so you may be able to benefit from the additional financial aid of a loan for other purposes, such as expanding your premises, as well as leasing your equipment at the same time. Having a lease agreement that includes breakdown and repair cover, as well as options for regular tech upgrades means you can run your business in the most cost-effective way, whilst benefiting from the best technology for your requirements.
Not a fixed asset
As you don’t own the tech you lease, it isn’t classed as a fixed asset. This means it stays off the balance sheet and is tax efficient. However, it is important to note that a lack of fixed assets may have a negative impact on securing any future finance for your business in the future, so make sure you’re fully aware of the pros and cons before deciding on if equipment rental is right for you.
Options to suit all businesses
Whether you’re a brand-new start-up, an SME, or an established organisation looking for some up-to-date tech to add to your existing assets, equipment leasing can provide flexible and adaptive solutions for whatever your organisational needs may be.
Leasing equipment is the ideal way for start-ups and small businesses to get set up with the best hardware and software available, specially tailored to the individual company and team needs.
Purchasing IT equipment outright does present you with the most options when it comes to how you use your tech, but this isn’t always the best option for your organisation. Taking on ownership of any equipment means taking on the range of responsibilities that go hand in hand with it. Upkeep, upgrades, value depreciation, resale and recycling – there are a multitude of factors to take into consideration aside from initial costs. Leasing gives you the benefit of the latest tech, without the burden of full ownership. Once your business has become a little more established, you may choose to take the plunge and take ownership of your IT assets, but until that is an option, leasing may just be the perfect option for you.
How to choose the best equipment leasing company for your needs
It’s important to be aware that, depending on what equipment you’re looking to lease, each provider will differ in type, benefits and rates. Make sure that you compare what is available to you, and find a company that aligns with your business needs and goals, as well as your price range. There are generally three types of equipment leasing providers:
- Independent lessors – a third-party lease provider who provide equipment leases directly to a business. Independent lessors generally specialise in the remarketing or equipment, enabling them to group items from multiple manufacturers and offer competitive APRs.
- Leasing brokers – lease brokers act as an intermediary party between you and a prospective lessor. Brokers will take care of a lot of the financial paperwork and will submit your financing requests while presenting you with relevant offers. Often specialising in a wide range of equipment, brokers are a pricier option, however they are generally able to secure better prices than those available through standard leasing channels.
Leasing companies – typically, businesses will only deal with a leasing company when they are in direct contact with a manufacturer. Leasing companies act as a subsidiary of larger scale manufacturers or dealers, facilitating leases between businesses and the parent company or network.
The pros and cons of leasing
As we’ve discovered, there are many factors to take into consideration when deciding if leasing IT equipment is the right step for you and your business. We’ve listed the top pros and cons that you should consider when choosing to lease equipment:
Pros of leasing:
- Ideal for equipment that needs regularly updating or that often has newer models released – such as IT equipment and software
- Low upfront costs and monthly repayments that can be factored into the business budget
- Wide range of tech options to suit individual needs
- Flexible support plans and solutions
- Almost immediate access to the best and most up to date tech
- Tax incentives
Cons of leasing:
- Paying interest may add to the overall cost of a machine over time
- Some lenders may have more specific term lengths or restrictive service packages (not something to worry about with HardSoft’s fully flexible solutions)
- Equipment is not an owned asset, so cannot be re-sold or used to recoup investment unless purchased at the end of the agreement