What is a finance lease?

A finance lease is a type of commercial lease in which the legal owner of the asset — in this case, a tractor — rents the asset to the user of the tractor for an agreed-upon period. When a lessee enters into this agreement, they have full operating control of the asset. They will have responsibility and assume the risks and rewards that come with owning the asset. For accounting purposes, the lease gives the lessee the same economic characteristics as if they had full ownership of the tractor. The lessee will record the asset as a fixed asset on their balance sheet. In this situation, the lessee will record the interest of the lease payment as an expense. The lesser charges rent in exchange for lending the asset. The lessor retains ownership of the asset but the lessee gains exclusive use of the asset (providing they abide by the terms of the lease). The lessee is obliged to make rental payments that cover the original cost of the asset. There is an obligation to pay all of the fixed rental amounts, sometimes including a percentage of the purchase price of the vehicle at the end of the contract.

What is an operating lease?

An operating lease in contrast is the simplest form of equipment leasing, where the customer doesn't take on the risks and rewards that come with owning the asset (such as maintenance costs). An operating lease or contract hire is a way of renting an asset for your business over a short or medium time frame without taking on any risk. With an operating lease, you can get a tractor hire over a fixed term, with lower monthly payments and without the commitment of ownership.

Vivek Seda

Asset Lending & Property Team Lead

Vivek Seda is the Asset Based Lending & Property Team Lead at Funding Options. Vivek has been in the commercial finance industry for over five years, helping SMEs in the UK access over £40m of funding in that time. He also supports the business on working on corporate finance and structured transactions successfully funding Acquisitions and MBOs for businesses.

All Blog Knowledge Pages

Blog articles

Education

What is asset finance and how does it work?

As a business owner, you might require additional funding to pay staff, foot a bill, purchase machinery, buy more stock – or something else entirely. Commercial asset finance is a flexible type of funding that can provide you with a working capital boost. It can also help you spread the cost of the equipment or machinery your business needs.

6 Dec 2022

Tips

5 things to consider when setting up your business premises

So, you’ve registered your business, have a team behind you and are ready to start selling your products or services. The only thing left to do is to secure a premises. To help you figure out where to look and what type of properties to explore, we’ve put together a handy list of things to think about along the way.

23 Nov 2022

Education

The best real estate loans via property development finance

The property development finance market can feel overwhelming, but knowing some fundamentals can help you to navigate it. At Funding Options, we’re here to help guide you through the funding process – from application to funds released. Here’s what you need to know about property development finance.

25 Oct 2022

See more blog articles

Knowledge pages

Commercial Property Finance

Find bridging finance for property development | Your free guide

Use bridging finance to fund your next property development project. We help match eligible borrowers to over 120 lenders offering £1,000 - £20M.

Business Loans

Short term business loans | Find and apply for business finance

Find and apply for short term business loans. We match eligible borrowers to 120+ lenders offering between £1,000 and £20M in secured and unsecured finance.

Commercial Property Finance

The investment property finance guide | Apply for property finance

Find out everything you need to know about investment property finance, including how to apply and what’s trending in the industry.

See more knowledge pages

Subscribe to our newsletter today

E-mail address

I agree to the terms and privacy policy.

Legal

Get in touch

Disclaimer: Funding Options helps UK firms access business finance, working directly with businesses and their trusted advisors. We are a credit broker and do not provide loans ourselves. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. We are also able to make insurance introductions. Funding Options will receive a commission or finder’s fee for effecting such finance and insurance introductions.

*Eligibility criteria apply - see Tide website for full details.

Funding Options Ltd is incorporated and registered in England and Wales with company number 07739337 and registered office at 4th Floor The Featherstone Building, 66 City Road, London, EC1Y 2AL.

© Funding Options Ltd · Authorised and Regulated by the Financial Conduct Authority · Reference Number 727867