Why do 95% FTSE 100 companies use leasing when acquiring new assets?
It is now widely accepted that it is the use of the asset that is important not the ownership. In order to grow and develop a business just needs access or the ability to use the latest technology and there is no value to be gained in owning the asset. Why would you want to own an asset that will reduce in value every day, losing money from day one of the purchase? As the billionaire J Paul Getty stated, “If it appreciates, buy it. If it depreciates, lease it.”
There is no need to use capital expenditure to make any asset purchases. It is far better to keep the capital within the business and achieve a greater return on capital employed (ROCE). There is also no need to use credit facilities with your business bank such as overdraft facilities, credit cards and loans. Again, it is far better to save these credit lines for other purposes. All businesses should therefore use leasing to make the asset purchases to help them to thrive, drive growth and allow development.
Here we discuss the most common misconceptions that we come across:
- Leasing/asset finance is expensive – Leasing is a low cost, tax efficient finance solution for purchases over 1-5 years allowing organisations to spread the cost of assets over fixed monthly, quarterly or annual payments. By using leasing organisations can budget and manage their cash flow in a more cost-efficient manner.
- Finance is for very large purchases – We can arrange finance for any purchase from £1,000 upwards.
- Finance is for when you can’t afford to pay with cash – Using finance is an excellent tool to manage cashflow and allow businesses to forecast accurately, whilst also maximising the benefit of using the working capital elsewhere.
- It is better to purchase outright – Not true. It is better to avoid using your cash to buy a depreciating asset and use it in another area of your business.
- Only very large businesses use finance – Wrong, companies of any size are able to use finance to purchase their assets.
Leasing is a low cost, tax efficient finance solution for purchases over 1-5 years allowing organisations to spread the cost of assets over fixed monthly, quarterly or annual payments. By using leasing organisations can budget and manage their cash flow in a more cost-efficient manner.
Benefits of leasing
- Offset the payments against taxable income saving corporation tax
- Purchase higher specification assets than budget dictates
- Maintain cash flow by avoiding large capital outlays
- Low fixed rate repayments
- Invest in other areas with a return on capital employed
- Manage and upgrade obsolescent assets
- Avoid owning depreciating assets