Leasing – Why would you own it?

By January 17, 2018 No Comments

Often we get asked why would you lease, especially if you are large corporate as large corporates can get really cheap debt.

The answer may surprise you. Almost always, leasing (operating leases) is cheaper than even the best corporate rates, that’s because the leasing company also puts in their own cash (the residual) so that the actual amount being borrowed is less, and hence the total deal is cheaper overall. This is because the leasing company owns the asset at the end of the lease and we are a lot better than pretty much any corporate at extracting value in that equipment. That’s largely from having great partners to extract value in almost any type of IT equipment or various other assets (including wine barrels but more about those in a later blog) to markets all over the world.

 The next question that invariably comes up is around giving the equipment back after a three or four lease term, surely all this IT stuff can be used for years. Short answer is it can, but as at today would you really want to be using a device that is now over 4 years old. To put that in perspective, if you look at phones, if you had purchased your phone 4 years ago you would be on an iPhone 6s and would you really want to be saddled with that? However with a lease you could be simply handing that back to the lessor and starting on the latest device which would be significantly better. Also with new accounting rules that bring all leases onto the balance sheet there is actually an exemption for low value items, so pretty much all IT end-user equipment would not even hit your balance sheet.

 For firms with a strong corporate presence and brand, the need to have the latest kit and also minimise admin on the whole asset programme, leasing is often the only solution they look at especially with the points above.

So that’s a layman’s perspective on the process and you can see why leasing is getting more and more popular as even large corporates have scarce resources both in time and money.