Leasing vs A Business Bank Loan
Bank loans are cheaper than leasing
In our previous blog, we looked at what is cheaper – leasing vs bank loans. In summary, for smaller items of capital equipment under £100,000.00 (excluding vehicles), more often than not, bank borrowing is cheaper than a lease.
So, if bank loans are cheaper, why do so many companies lease?
Another provider of finance
Having another company that will lend you money is a good thing. It is like an insurance policy on an event that may or may not take place in the future. You will still have a bank facility in place that you can call on if necessary.
Leasing may be easier and quicker to arrange
Your bank manager will not ask to see your bank statements, but he may well ask for management accounts or a personal net worth statement. Also, our customers tell us time and time again that the banks just take too long to get back to them.
If you have an overdraft facility in place which is secured by a personal guarantee and the bank makes a loan to you, they may well not ask for a personal guarantee. That is because they are probably covered for all lending to you on the original personal guarantee. If we arranged a lease for you with no personal guarantee, you are reducing your personal financial exposure in the event of a serious problem in the business.
Tax and VAT benefits
If you pay cash for equipment, you will have to pay all the VAT upfront. With a rental lease, you only pay VAT on the rental element. Often, a company will have to borrow the VAT money upfront, hence increasing the amount you borrow. For many customers there are also tax benefits to leasing.
So what’s cheapest a bank loan or a lease?
If you are just looking at the actual amount of interest you pay, then for smaller value borrowing, a bank loan would potentially be a cheaper option compared to a lease. When you look at all the other benefits leasing brings, you can see why 33% of assets are still purchased via a lease in the UK.
For further information please give a member of our team a call on: 01494 611 456.