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"Does leasing work for small businesses?”

The short answer is “yes”.

In 2014, Lease Europe surveyed 3,000 SMEs from 8 European countries and found that 51% used leasing, with this figure expected to grow. And there are many reasons why it’s growing in popularity. Here are the top 5.

1. Leasing is a cost-effective alternative to cash expenditure

Cash flow and working capital are common concerns for SMEs. Leasing makes it easier to manage both of these because you have predictable fixed payments. That way you keep cash in the business and can budget for equipment over a set period.

2. Leasing might help you generate profit more quickly

For equipment that generates income for your business, like certain plant, catering equipment or fitness equipment, for example, leasing enables you to start generating profit from it straight away. There’s no prolonged period where you wait to achieve a return on investment because you’ve had a substantial up-front payment.

In essence, this means the equipment pays for itself because it’s earning money for the business as you make the regular payments.

3. Leasing frees you to choose the best equipment for your business

Lots of small business owners and managers find themselves saying something like, “We need a new piece of equipment and can spend £X.” Then they do their research and find the best option for that budget. But there’s that niggling feeling – that, “Wouldn’t it be great if we could get that more expensive model?”

With leasing, you’re not constrained by that £X – you can invest in what’s actually best for the business instead of what you can afford up front. You’re free from that £X budget, so you don’t have to compromise on quality.

4. Leasing can reduce your tax liability

Leasing payments are 100% deductible against profits, making it a tax-efficient way to invest in equipment for your business.

The specific tax benefits will depend on your business, so speak to your vendor and your accountant to determine exactly how leasing affects your liability.

5. Leasing is highly flexible

Small business owners and managers are often wary being tied into lengthy contracts, and there’s a misconception that leasing involves exactly that type of situation, where you’re at risk because you’re creating a medium-term obligation.

It’s a misconception, because most of our customers are surprised at how many types of leasing products are available. It’s not just regular monthly or quarterly payments like you have with a personal car or washing machine. There’s flexibility to adapt to your business, in terms of the payment amounts and the structure.

This is particularly beneficial if you’re looking at equipment where technology advances quickly, because leasing becomes an affordable way to upgrade on a regular basis. At the end of the lease, you have the opportunity to renew or trade up so you can capitalise on innovation.

With these 5 benefits in mind, ask your vendor about leasing the next time you're considering a purchase.

If the vendor doesn't offer the option, why not speak to us directly - we can often secure you a flexible deal that allows you to reap all of these benefits.

Key takeaways

  • Leasing is a cost-effective alternative to cash expenditure, helping you preserve your working capital

  • You're not constrained by budget in the same way, so you can invest in what you need for your business

  • You can reduce your tax liability because lease payments can be 100% tax deductible

  • It’s easy to upgrade your equipment, so you can capitalise on innovation to grow your business
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Sharon Price

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