Industries That Regularly Benefit From Leasing Equipment
Leasing is a great option for companies of all sizes, across a wide range of industries. Leasing equipment from as small as a mobile phone to as large as an offshore oil rig is possible for businesses.
That’s one reason that so many companies from a variety of industries choose to lease equipment, as opposed to purchasing it outright.
But there are many others, which are discussed below. First, here are just a few of the industries that typically lease their equipment and assets. And more companies are recognising the benefits and undertaking leasing, for the first time, each and every day.
Common Industries That Lease Equipment
– Civilian Airline Industry
– Service Providers
– Farming and Agriculture
Civilian Airline Indusrty
From the bus that drops you off at the departure lounge, to the pump that delivers the first cold drink of your holiday, it’s near enough certain that all the things you use when travelling by aeroplane will be leased. And most certain will be the leasing of the plane itself.
Big businesses of all types utilise lease management in order to gain access to the assets they need in order to operate. From delivery vans to the headsets at your electricity supplier’s call centre, if you deal with a big service provider, it’s likely that at least some, if not all, of the tools they need to function, will be leased.
Because construction and plant machinery is expensive, and only used in short, infrequent spells, leasing is common within this industry.
For example, a tower crane is required to construct most commercial steel framed buildings, but may only be on site for a matter of days. And they can cost over a million pounds to purchase.
So leasing is the only sensible way of construction firms gaining access to such an expensive asset in a notoriously volatile industry. But this rule of thumb applies to smaller ticket items as well, like company vehicles and even specialist hand-tools.
Farming & Agriculture
For similar reasons as the tower crane example above, leasing is popular within the farming and agriculture sector. Whilst some local farmers may share the purchase of regularly used equipment between each other, seasonal equipment such as harvesters or processors is more likely to be leased.
Especially in uncertain economic climates like the one currently being faced, manufacturing industries often prefer to lease their equipment. From machinery used in production to the fleet of delivery vehicles, leasing allows a degree of flexibility and even scalability – both up and down.
Chain and department stores, as well as some small independent businesses, will lease items on the shop floor, ranging from the checkout “epos” till to the shelves and rails used to showcase products. And, of course, the retail space itself is usually leased.
The Benefits Of Leasing
The benefits of leasing are plentiful. Leasing allows the lessee to pay for the cost of the availability and use of the asset as the financial benefits of its use are realised rather than an upfront investment for future gain.
Leasing equipment means that a small amount of capital, in comparison to the purchase price of said equipment, needs to be found for as long as the company wants to use the product. But the company gets to use the equipment, more or less, as though it was their own property.
A new piece of equipment can be accessed without incurring the cost of buying it or the responsibility of selling it on when the time comes. Instead, it gets returned to the lessor and the commitment ends.
Though, if a company envisages that they will have grown in a few years time and might be in a position to purchase said piece of equipment, the leasing industry has evolved to the point where agreements can include buy options upon conclusion. But the lease period and costs paid will be considered in the price.
All of this helps companies maintain a healthier cash flow from month to month, whilst also ensuring they have access to the best or newest equipment that they need.
And because the demand for leases has and continues to grow, lease providers need to stay competitive. Therefore, they need to keep offering favourable options, assets and agreements. This means it’s a “buyer’s” market, when it comes to leasing, if you’ll pardon the analogy.
So, Why Doesn’t Every Company Use The Advantages Of Leasing?
Not all lease agreements run perfectly for both parties involved. There’s risk on both sides.
The lessor is counting on their equipment being returned in a fit state at the end of the agreement, so needs to put clauses in place to protect their stock. Some of these can be pretty stringent and this is often too big a concern for many companies.
The lessee needs to make sure they don’t invalidate the conditions of their agreement and incur financial expense making good any damages or other issues. Or, alternatively, they have to spend time and energy fighting their corner especially over equipment returns at lease end; time and resource that could be better spent elsewhere.
For these reasons, lease agreements can be notoriously tough to negotiate. Especially so when the most favourable agreements tend to be for a long-term duration.
Another Big Thing If You’re Thinking About Leasing Equipment…
The lease accounting changes, which are imminent, are described as one of the biggest changes in global accounting history.
Historically, certain lease agreements could be kept off balance sheet, which was a huge attraction to leasing for companies looking to have a healthy as possible balance sheet whilst still being able to acquire use of the best possible assets and resources.
But IFRS 16 and FASB ASC 842 are two global accounting changes which will see virtually all lease agreements having to be reported on balance sheet.
This might be a major consideration for your business, especially should you have a sizeable lease portfolio to manage.
Find Out More: IFRS 16 – Lease Accounting Summary/Overview
This is just a snapshot into what attracts companies to leasing. And many of the benefits and flexibilities offered from lease agreements will far outweigh any of the potential negatives.
For a more thorough explanation, get this more in-depth eBook so you can find out all you need to know about lease agreements and whether they’re right for your business.