If you do not understand the difference between an Equipment Lease and an Equipment Loan, you are not on your own!

Many business owners continue to finance their equipment the "old fashioned way" - through Hire Purchase (H.P.) or Lease Purchase (L.P.). In many cases this is purely because they are not aware of the potential benefits of leasing their equipment. These advantages can be seen in four distinct areas: initial cost; equipment obsolescence; tax benefits and off balance sheet financing.

Due to these benefits, many business owners are realizing that they do not necessarily need to own their equipment in order to conduct successful business; they only need to have use of it for a specific period.

The benefit of Equipment Leasing is that it offers 100% finance and therefore covers the total cost of equipment. A lease is the "rental" of equipment, therefore; there are no deposits required on the equipment that your business needs and no need to have to find the whole of the VAT as an 'upfront' payment which may impose additional cash-flow pressure onto the business. These factors alone contrasts with many Commercial Bank Equipment Loans, as they often require a deposit, ranging from 20% to 50%. In fact, most leases will only require the first monthly rental and last payment, in advance of delivery.

Even if you only require a small amount of equipment, an Equipment Lease can result in a tremendous reduction in the expenses involved in upgrading your equipment, giving you the opportunity to put thousands of pounds of working capital back into your business and meaning that money does not have to be tied up in depreciating assets.

A second advantage of leasing your equipment is that it can help you to avoid "economic obsolescence", which occurs when business equipment can either not keep up with the demands of the market, or lacks the technology required to enable your business to remain competitive. Leasing your equipment helps to avoid obsolescence by allowing you to upgrade your equipment every few years. As a general rule, when you are deciding which type of financing to use, remember; if the equipment appreciates, purchase it. If the equipment depreciates, lease it! After all, who wants to own a depreciating asset?

In addition to these two advantages, leasing your equipment can also provide your business with a substantial tax advantage. While you should always consult with your financial advisor before deciding, it helps to know that most equipment leases can be structured so that you can write-off 100% of the annual lease payments. This is because a lease is a rental and as the business is only 'using' the equipment, the monthly payments are the same as any normal monthly expenses. This fact contrasts to the current tax laws regarding Equipment Loans, as they only allow a business to write-off the interest paid on the loan. Once again, you can see how an Equipment Lease can be beneficial to your business.

The final important benefit to choosing an Equipment Lease over an Equipment Loan that will be mentioned, is that leasing allows you to keep the equipment off your balance sheet. This is because the equipment is being rented and therefore actually belongs to a company other than the one that is using it. For this reason, leases are often referred to as 'off balance sheet' financing - a tremendous advantage to both large and small businesses.

Large businesses prefer this leasing option as they do not want to own millions of pounds worth of equipment; partly because, with daily usage, the equipment would depreciate substantially and whoever owns the equipment is responsible for that depreciation on their balance sheet. Also, large companies may insist that a Board of Directors approve any new loans. However, a lease is less likely to require approval by the Board.

In smaller businesses, leasing can also prove an advantageous option as it means that additional debt will not be shown on the balance sheet. If it was to be on the balance sheet, for example, in the case of using a loan, it may affect their ability to borrow money in the future. By showing less debt on the balance sheet, a company will also seem more attractive to potential buyers, should a time arise when you consider selling your company.

Your Business Finance Consultant (BFC) works with many leasing companies, nationwide and therefore, they can help you to decipher if Equipment Leasing is the right option for your business. If you should decide to lease, your BFC can usually obtain the equipment you require with one simple credit application: In many cases they can have the new equipment approved and on site in just a few days.