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September 10, 2018

A guide to equipment leasing

When thinking about equipment leasing, most consumers and even businesses would first think of applying for a loan from the bank...

By Christopher Marchant

When thinking about equipment leasing, most consumers and even businesses would first think of applying for a loan from the bank, and then using the money to buy the equipment they need.

However, there is an entire sector dedicated to equipment leasing. It is known as the asset finance industry, and worldwide is worth hundreds of billions of dollars every year.

Dedicated asset finance companies, operating as a separate branch of a bank or as an independent company, offer financing to a business so equipment can be bought in installments or leased over time and handed back and the end of the agreement. A rate will be charged on top of the amount being paid back, an identical profit model to the traditional customer loan.

Transportation is one of the largest sectors for equipment leasing. This can include a wide range of cars (fleet) for employees to drive or for a cab company to utilize, or trucks to deliver goods and coaches to transport people. This can also be for vehicles as large as trains (rolling stock) and aeroplanes.

Outside of transportation, equipment leasing can mean leasing any asset from software to combine harvesters. It is of benefit to the consumer who can pay for the asset in increments, whilst putting it to use for the business.

Asset finance companies will also be more likely than traditional banks to consider a businesses financial situation in the face of hardship, and willing to wait for a period of expected profitability for the company so as they can pay back arrears (forbearance). While collections are a core part of the asset finance industry, forced acquisitions are at a historically low level.

A study has shown that half of UK business believe equipment shortages are impacting growth, attributing this to new innovations in the market and the cost of maintenance. Both of these are factors that can be resolved by a effective equipment leasing provision.

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