Asset finance: What is an operating lease?

As asset finance brokers, we thought it would be helpful to share some posts explaining some of the finance options on the market. Today we’re focusing on operating leases so, what is an operating lease?

What is an Operating Lease?

An operating lease is a type of equipment lease and is an agreement where you can use an asset over an agreed period of time, however it does not give you ownership of such asset.

How does it work?

Operating leases are very straightforward as you are essentially renting an asset for your business for an agreed period of time. As you don’t own the asset, or have this option, you don’t take on any of the risks and rewards of ownership.

Advantages

• As you are only renting the asset on a short time basis, you are able to upgrade your equipment more regularly.

• There can be tax benefits as instead of appearing as an asset on the balance sheet, rental payments can be offset against profits.

• As you don’t own the asset, you aren’t expected to pay for any associated costs such as maintenance. Like a lease for a car, costs for repairs and maintenance are often covered which can be really useful for equipment which requires a lot of upkeep.

Disadvantages

• You won’t ever gain ownership of the asset as at the end of the lease term you’ll need to return the asset and then enter into a new lease, either for the same asset or a replacement.

• The cost of leasing an asset is often higher than simply buying the same asset – however this does depend on the business and length of the lease.

If you are looking for asset finance and would like to discuss your options, get in touch with Dorsia Finance – info@dorsiafinance.co.uk | 01522 420 420. We are based in Lincoln but work nationwide.

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