Asset Finance leasing

Enterprises with restricted funding are great beneficiaries of asset finance leasing. This is because they do not have to spend a huge chunk of their working capital on the purchase of expensive assets. Instead, they lease the assets and end up improving their cash flow with the money saved through the decision to do so.

There are two options for those who are considering asset finance; they can either hire purchase the assets or obtain them on a lease contract. The advantage of hire purchase is that on the termination of the hiring period, the asset’s title is transferred to the customer. In leasing the assets, title will always be with the leasing company; when the contract expires, a company will be forced to return the asset to the rightful owner if they have no intentions of renewing the lease contract.

In both situations, the customer must pay a certain amount of money as per the contract agreement. Lease arrangements are mostly based around the principle of non-transfer of ownership. All throughout the lease period, the customer is expected to pay for the services of the asset. The amount paid is determined by a number of factors. In some cases, the payment plan is influenced by the income generated from the utilization of the asset in question.

For those interested in leasing their assets, there are a number of lease options available:

Operating lease

Unlike in other lease agreements, the operating lease involves the utility of equipment on short-term basis. You will not recover the full cost of leasing the equipment. Once the lease contact is terminated, an asset is either sold off or it is leased to a different customer.

This kind of leasing is mostly applicable for those assets that have a second hand market that is easy to come by. The contact is mostly shorter than the life span of the asset. The leased asset is not calculated as part of the business’s capital assets. The finances allotted to the leased assets are deducted from the overheads incurred.

Finance lease

This option is closely related to hire purchase. The only difference is that the ownership of the assets will never be transferred at any point of the lease period. You are required to pay the total cost of the asset. In addition to that, you will be required to pay lease rentals for the duration of the lease contract. In this lease, the customer gets to fully experience all the effects of owning the asset. All the costs associated with the use of the asset are covered by the customer. The leased asset is treated as a capital asset in the financial accounts. When the lease expires, the asset can be re-leased to the customer at cheaper rates or it can be sold off to a different business.