Finance Guide: Leases

Following the news that the British Business Bank has funded an increased supply of asset finance options for SMEs by providing a £100 million facility to Hitachi Capital UK, we thought it would be a good idea to run down a few of the most common types of Asset Finance. Today, we’ll talk about Finance Leases and Operating Leases – and the difference between the two.

The two types of lease

• Leases are a form of Asset Finance, a way for businesses to purchase essential physical assets like equipment or machinery without paying for them outright.

• Unlike Hire Purchase, the monthly payments a business makes for the lease don’t add up to the total cost of the asset, so they won’t own it once the terms are up – they’ll only have the option to continue leasing it or return it. 

• Because the asset acts as its own security, approval rates for leases are generally high – but like any other loan this depends on the business’ history and credit rating.

• The difference between Finance Leases and Operating Leases lies in the terms – the terms of a finance lease generally last as long as the equipment will be useful (a period determined by the lender) while an operating lease usually goes on for less than the asset’s useful life. This means that operating leases can be a better option if a business only needs the equipment temporarily.

Whether you’re a professional advisor researching funding options for a client or a business owner looking for a way to bring in some extra capital, you’ll enjoy our series of Finance Guides – all the information you need in a short and simple package.

Rangewell’s innovative online portal has mapped the entire market of SME finance in order to provide small businesses and their advisors with finance options tailored to their specific needs. If you’re interested in leases, we’ll use our extensive market map of thousands of loan products from over 200 business lenders to connect you to whichever option suits your situation best.