Equipment leasing for companies: use the kit you need without buying it

Equipment leasing is a rental agreement: a lender buys the equipment your company chooses and rents it to you for a fixed period in return for regular rentals. The lender stays the owner throughout, and your company never takes legal title.

A typical equipment lease runs through these stages:

1. Specification. Your company chooses the equipment and supplier and agrees the price, including any installation or software.
2. Structure. You decide between a finance lease and an operating lease, the term, how many rentals are paid in advance and whether rentals are monthly, quarterly or annual.
3. Credit decision. The lender looks at your company's accounts, bank statements and credit history, and at the equipment itself. For an operating lease it also estimates what the equipment will be worth when it comes back.
4. Documents. The lessor sends the lease agreement, schedules listing the equipment, and often a delivery or acceptance certificate for your company to sign when the kit arrives.
5. Supplier payment. Once the acceptance certificate is signed, the lender pays the supplier and the primary lease period begins.
6. Rentals and upkeep. Your company pays the rentals, insures the equipment and, under most finance leases, maintains it.
7. End of term. Depending on the lease type, your company returns the equipment, continues renting it or arranges its sale on the lender's behalf.

Sign the acceptance certificate only when everything has been delivered and works, because rentals are usually due even if a fault appears later.

A finance lease suits equipment your company expects to use for most of its working life, while an operating lease suits equipment you expect to hand back while it still has value. The difference comes down to who carries the risk on the equipment's value at the end.

Finance lease

Rentals in the primary period are set to repay the lender's full outlay plus its charges, so the lender takes little or no risk on resale value. After the primary period, many finance leases move into a secondary period, where your company can keep using the equipment for a much smaller rental, sometimes called a peppercorn rental, often paid once a year. When the equipment is no longer needed, it is usually sold to a third party, and the agreement may pass a large share of the proceeds back to your company as a rebate of rentals. The exact share is set by each lender.

Operating lease

The lender assumes the equipment will have a residual value at the end and only charges rentals on the part of the value your company uses. Lenders are selective about this, favouring assets with a dependable second-hand market, such as forklifts, some IT and certain machinery. Expect return conditions covering usage, condition and how the equipment is packed and collected.

Choosing between them

• Choose a finance lease if you are likely to keep the equipment until it is worn out.
• Choose an operating lease if you want to replace it on a set cycle and accept handing it back for lower rentals.
• If you would rather own the asset and claim the capital allowances, look at business hire purchase instead.

The cost of a lease is the total of all rentals and fees compared with the equipment's price.

• Advance rentals: many leases ask for one, two or three rentals at the start instead of a deposit.
• Primary rentals: the main cost, set by the price, the term, the lender's pricing and, on operating leases, the expected residual value.
• Documentation fee: usually charged at the start.
• Secondary rentals: the smaller rentals if a finance lease continues after the primary term.
• End-of-lease costs: collection, return or refurbishment charges on operating leases if equipment comes back outside agreed conditions.
• Insurance: your company normally insures the equipment.
• Termination sums: what you would pay to end the lease early, which is often close to the remaining rentals.

Lenders price leases on the equipment type, its expected life and resale market, the term, the payment profile and your company's credit profile. You can test different terms with our equipment lease calculator.

Illustrative example only: actual costs depend on the lender and your circumstances.

A dental practice company needs imaging equipment costing £40,000 plus VAT and wants to use it for three years.

• Finance lease: 36 monthly rentals of £1,250 plus VAT. Total primary rentals: 36 × £1,250 = £45,000. Cost of finance compared with the price: £45,000 − £40,000 = £5,000. After 36 months the company could carry on in a secondary period for a small annual rental.
• Operating lease: the lender expects the equipment to be worth £8,000 after three years, so rentals cover the remaining £32,000 plus its charges. At 36 monthly rentals of £1,050 plus VAT, the total is £37,800. The company returns the equipment at the end.

VAT at 20% is added to each rental: £250 a month on the finance lease and £210 a month on the operating lease. A VAT-registered company may be able to reclaim it. The operating lease costs less in rentals but leaves the company without the equipment after three years.

There is no set maximum: the lender looks at the value and type of equipment and whether your company can comfortably afford the rentals. Larger leases usually need filed accounts and sometimes management accounts.

Many lenders also set an overall exposure limit per company. Where a company needs equipment regularly, some lenders can agree a master lease, where new equipment is added under schedules to one agreement without fresh documents each time, subject to their ongoing checks.

A lease is a fixed commitment that is hard to end early, so check the terms before signing.

• Minimum term and termination: most leases cannot be cancelled during the primary period without paying a termination sum.
• Automatic continuation: some agreements roll into further rental periods unless you give written notice within a set window. Diary the notice date.
• Return conditions: on operating leases, check the standards for condition, usage and collection.
• Personal guarantees: lenders may ask directors to guarantee the rentals. Read our guide to personal guarantees.
• Software and services: check whether bundled software licences or service contracts can be ended if the lease ends early, and who is responsible if the supplier stops trading.
• Repossession: if rentals are not paid, the lender can usually end the lease, take back the equipment and claim the amounts set out in the agreement.

Leasing usually suits a company when using the equipment matters more than owning it. Other options suit different goals.

• Business hire purchase: better for long-life assets you want to own, where your company wants the capital allowances.
• Asset refinance: for equipment your company already owns, to release cash it paid upfront.
• Unsecured business loans: can suit low-value or mixed purchases, such as a fit-out with little resale value, where a lessor may not want the equipment as security.

It depends on the lender and the equipment. Some lenders consider companies with limited trading history or a past credit issue, especially where the equipment has a strong resale market.

In those cases, lenders may ask for more rentals in advance, a shorter term or a director's guarantee. Companies with low profits may still be considered where bank statements show the rentals are affordable. Each lender sets its own minimum trading period, from a few months to two or three years, and some will decline.

Equipment leasing for limited companies, LLPs and partnerships of four or more partners is generally unregulated. Consumer Credit Act protections generally do not apply, so the lease agreement sets out your company's rights and obligations.

Read the full terms and take advice from your accountant or a solicitor where needed, particularly on termination, tax and accounting treatment. Welcome Finance is not authorised or regulated by the FCA and arranges unregulated business finance only. See our guide to regulated and unregulated business finance.

We are a commercial finance broker, not a lender, and we help your company find a lease that fits how it will use the equipment. Every client has a dedicated relationship manager, a real person you can reach by phone, email and chat from first enquiry until the lender pays the supplier.

1. Start with our 60-second eligibility check, which does not affect your credit score.
2. Your relationship manager talks through the equipment, how long you will keep it and whether a finance or operating lease suits.
3. We approach suitable lenders on our panel. They run their own credit checks once you decide to apply.
4. We help you compare quotes on total rentals, fees and end-of-lease terms.
5. You sign the acceptance certificate when the equipment is installed, and the lender pays the supplier.

We charge your company no fee. We are paid a commission by the lender when the finance completes, and you can ask how much it is. Commission can differ between lenders. Read how we are paid.

What is a secondary rental period?

It is the period after the main term of a finance lease, when your company can keep using the equipment for a much smaller rental, often paid annually, until it chooses to stop.

Can my company buy the equipment at the end of a lease?

Not usually. A lease does not include an option to buy, which is the main difference from hire purchase. If ownership matters, hire purchase is generally the better fit.

What is an acceptance certificate?

It is a document your company signs to confirm the equipment has been delivered and is working. The lender usually pays the supplier once it is signed, so only sign when you are satisfied.

Who is responsible for repairs on leased equipment?

Under most finance leases your company is responsible for maintenance and repairs. Some operating leases include maintenance, so check what is covered.

Can rentals be paid quarterly or annually?

Many lenders offer quarterly or annual rentals as well as monthly ones. Some can also match rentals to seasonal income.

What happens if the supplier goes out of business?

Your company still owes the rentals to the lender. Ask how support, warranties and software licences would continue, and consider well-established suppliers for critical equipment.

Can I lease second-hand equipment?

Some lenders lease used equipment, usually with a shorter term. Operating leases on used equipment are less common because the residual value is harder to predict.

Can I end a lease early if the equipment is no longer needed?

Usually only by paying a termination sum, which is often close to the remaining rentals. Some lenders allow an upgrade to replace the old equipment, which is often the more practical route.