Depending on the type of business you run and the industry you work in, you may well need to invest considerable money in equipment, tools, and vehicles. But, when you’re trying to finance your business off your own back, it’s not always easy to buy these items outright!
It’s one of many reasons why business owners look to equipment leasing as a short-term, low-risk approach to getting specific jobs done. Available through asset-backed finance and short-term loans, leasing tools and equipment means there are no huge overheads nor any need for you to store heavy-duty items long-term.
In this guide, we’ll take you through why equipment leasing could benefit your cash flow, and why this type of asset lending / short-term finance might save you money and hassle in the long run.
What is equipment leasing, and what are the benefits?
Equipment leasing is an arrangement where you agree to borrow money so you can rent or hire certain tools for any given period you need them for.
Much like how you can rent clothing and home appliances, you only ever borrow and pay for what you need, for as long as you need it.
It’s a preferred option for contractors and sole traders who, for example, might only take on sporadic jobs and projects. It’s also preferred by professionals who might not have much physical storage space available but still need to carry out a certain type of work.
As an ABL loan, equipment leasing is highly accessible in the UK – however, as always, you’ll need to have a strong credit rating and prove to your lender that you can adhere to any payment plans and APR applied. Reading the fine print has never been more important!
What’s more, as the lessee, you don’t actually own the equipment you rent. This gives you an extra modicum of freedom.
Let’s take a look at the main financial benefits of equipment leasing, regardless of your industry or the work you undertake.
You don’t have to pay for equipment in one go
The biggest benefit for your cash flow with leasing is, of course, that you don’t have to pay for any tools you need to use outright.
One of the biggest restrictions contractors face in the UK is paying for equipment overheads. This often means seeking out financing options, such as asset-based lending.
With equipment leasing, you simply borrow a set amount of money to cover the hiring costs of the tools you need to lease. However, the lessor, as mentioned, still owns the equipment in question.
It’s essentially a rental agreement. Instead of buying a tractor for your farm, for example – which carries massive overhead costs – you can seek out an equipment leasing loan with a lender, and just rent the vehicle for a set period. That could be for a couple of months, for the whole of harvest season, or even a year.
That means you can continue freeing up money to spend on other areas of your business, such as materials, staffing costs, and power rates.
Budgeting is much easier
Imagine that you suddenly need to pay for a new tool or piece of equipment at short notice. For a building firm, for example, that might be a cherry picker or a scissor lift that you can use to work at height. Regardless, it’s a major upfront cost that you’ll have to find out of your own pocket, and fast.
With an equipment leasing loan and arrangement, meanwhile, it’s easier for you to plan your budgeting ahead of time. You have fixed monthly outgoings that you can prepare your expenses account for, and that also means you can balance your books with greater confidence from month to month.
In many cases, business owners and contractors take out an asset backed loan for this very reason – so they don’t have to worry about suddenly needing to invest in emergency equipment at the worst possible time.
They can easily plan ahead and line up an equipment lease they know will endure the weeks and months to come, with the finance available to do so comfortably.
Some business owners also find it easier to map out their tax expenses for HM Revenue and Customs with monthly accounting, too.
You don’t have to pay out for any unforeseen repair or maintenance
When you come to lease certain equipment, you might find that it’s covered by an insurance policy, meaning you don’t have to worry about shelling out for unexpected repairs or for regular maintenance.
Think about heavy equipment or computer systems that can take lots of effort and capital to keep running smoothly. It’s an extra set of expenses that, with basic cash flow, might not be so simple for you to balance.
In most cases, if you invest in a vehicle off the back of an equipment lease asset lending agreement, the company you rent from will cover you for emergency breakdown and repair. That means you simply have to account for fuel and any general running costs otherwise incurred.
It’s always wise to have some form of financial safety net for any unforeseen business expenses. However, when you hire or lease equipment through asset backed lending, you can avoid having to pay a variety of immediate costs outright.
You don’t have to pay for storage
As mentioned briefly above, actually storing certain equipment can be a major hassle for smaller businesses and sole traders. Of course, if you’re leading tools, you will need to store them somewhere in the short-term – but there’s no need for concern over long-term storage solutions.
That means you can avoid having to pay yet another company for the privilege of keeping hold of your items. It also means there’s no headaches about moving to a larger premises right away unless you absolutely have to.
You don’t have to worry about asset depreciation
When you invest in an asset for your business, you might consider selling it later on and get a financial return – however, this isn’t always profitable, as many assets depreciate in value.
Business cars and computer systems, for example, will always depreciate in value over time as they gradually become obsolete and newer systems become available. That means the money you eventually hope to make from sale will hardly make up the initial price you paid.
Depreciation can be a cash flow issue if you bank on receiving a specific amount of money for the items you buy. It’s never wise to do this. It’s never something to bank on or base your business around.
With equipment leasing and loans, you never actually own the tools you hire. That means you’re paying as you go, there’s no large overheads, and you don’t have to calculate how much you could get back from an eventual sale.
Why asset-based lending is your best route towards equipment leasing
Asset backed finance is a fantastic option to consider when looking to lease or rent tools and equipment. It’s a flexible way to get financial support for your business’s short-term needs, and unlike unsecured loans, interest rates are frequently lower.
Asset lending simply means you agree to a certain tool or asset of your own being counted as collateral towards any leasing credit you take out. For example, if you already have a company car, you might put it up as a viable asset to secure your loan amount against.
Asset based loans are preferred by small business owners who have valuable investments they don’t mind putting against short-term finance. Provided you are able to make repayments as set out by your lender, you’re free from any worries about losing access to your assets for as long as you hire the equipment you need.
Of course, it is always a good idea to consider your options carefully. We recommend speaking with a member of our team in detail regarding what you need from an equipment leasing loan, and whether or not a backed option will be suitable for your cash flow.
In some cases, you might be able to supply the details of a guarantor, who can pick up repayments for you if, for whatever reason, you default. However, we don’t recommend you enter into loan negotiations unless you are certain that you can afford to pay the rate that you intend to borrow back.
Start making cash flow simpler with equipment leasing loans
Equipment leasing is a flexible, freeing way for you to continue delivering a fantastic service to your clients without the surging overheads. Simply arrange an equipment lease loan with a provider, and rent what you need from a reputable firm for as long as you need it.
At Origin Finance, we care deeply about helping our customers find asset backed lending options that suit their short and long-term needs. It all starts with a quick conversation – get in touch with our team today and let us know how we can help your business grow!
If you like this article, you might also enjoy reading:
- Everything your business needs to know about equipment refinance
- How to finance commercial vehicles for your business
SOURCES:
https://legalvision.co.uk/commercial-lease-property/benefits-leasing-equipment/
https://charteraz.com/2023/06/20/how-equipment-leasing-can-improve-cash-flow/
