Need equipment or new vehicles for a one-off project? Operating leases offer a smart way to access the assets you need, when you need them.
Buying new vehicles, equipment, or tools can be expensive, especially if your business needs to manage cash flow or regularly upgrade.
An operating lease lets you rent equipment instead of buying it. The equipment doesn’t go on your balance sheet, and you don’t own it at the end.
This type of lease gives your business flexibility and helps you access the latest tools or tech without a big upfront cost or long term commitment.
An operating lease is a contract that allows your business to use an asset without having to own it. A finance provider will purchase the asset on behalf of your business and allow you to use it for as long as you need to in exchange for affordable monthly payments. Once the contract ends, you'll simply be asked to pay the difference between the original price and the residual value upon expiration.
Here’s an example of how an operating lease would work:
Here’s a breakdown of how the costs are calculated:
Protect your cash flow and avoid large upfront payments for new equipment. Choose how long you'd like to keep the equipment for and, as long as you keep up with your monthly payments, you'll have full use without the burden of full ownership.
Your monthly payments will be set out in a clear and transparent way before your operating lease agreement begins, helping you to budget and keep on top of your finances.
Renting equipment through an operating lease lets you use specialised tools for a set time without buying them upfront, helping you stay flexible and efficient.
Arranging operating lease financing can help your business to source assets that may have otherwise been unaffordable. It presents an accessible alternative for a small business that’s trying to grow, but would prefer to invest working capital into other areas.
You can use an operating lease to get a variety of assets for your business. Some common assets that businesses lease include:
The cost of a car operating lease can vary depending on several factors, including the make and model of the car, the lease term, mileage limits, and any additional services included in the lease agreement. If you’re considering leasing a car, you could use our Business Loan Calculator to get an estimate of what your monthly repayments could look like. Keep in mind that the actual costs may vary depending on the specific terms of the agreement.
An operating lease can be a great option for many businesses, but you might want to consider other financing options to see which aligns best with your needs.
Here are some alternative ways you can fund the purchase of a vehicle or asset:
Finance lease: a finance lease typically provides the option to purchase the asset at the end of the agreement for a predetermined price. This option suits if your business is looking for eventual ownership without a significant upfront investment.
Hire purchase: with a hire purchase agreement, your business will make fixed monthly payments towards owning the asset outright. While this option offers ownership at the end of the term, it requires a larger initial deposit and may include interest charges.
Asset finance: asset finance encompasses various options tailored to different assets, such as equipment loans, or refinancing. This flexibility allows your business to secure funding for essential assets while preserving cash flow.
Business loan: while not specific to vehicle financing, a business loan can be used to purchase vehicles outright. A business loan will give you ownership from the start, but this means that you’ll bear the responsibility of maintenance, depreciation, and eventual disposal.
An operating lease is similar to a rental agreement where the lessor (the lender) retains ownership of the asset and the lessee (the business) pays for the asset's use. An operating lease is typically short-term with and not included on the business’ balance sheet.
On the other hand, a finance lease resembles a purchase, with the business assuming the risks and rewards that come with owning a vehicle. In a finance lease, the asset is a liability on the balance sheet.
If you’re a UK business, operating leases don’t typically count as debt on your balance sheet. Instead, they’re treated as off-balance-sheet liabilities.
This means that the lease payments are expensed on the income statement as operating expenses, rather than being recorded as debt.
However, it's important to note that accounting standards, such as IFRS 16, may require some operating leases to be recognised as liabilities on your balance sheet, depending on specific criteria. If you’re unsure, you can consult with an accountant about how an operating lease is accounted for.
An operating lease on a company car is a rental agreement where a business leases a vehicle from a leasing provider for a set period of time. In an operating lease, the leasing provider retains ownership of the car. The business pays monthly lease payments for the use of the vehicle, typically covering maintenance and other services. At the end of the lease term, the company returns the car to the provider.