The Department for Education & Funding (DfE) has strict guidelines on school borrowing and leasing. They advise all schools to take out operating leases, as the schools aren’t allowed to “lease to buy”. However,operating leases aren’t always in the school’s best interests, as we outlined in our “Operating Leases – is what you see what you get?” post, as there are downsides to them.
This is why we’re dedicating this blog post, to the alternatives, which provide more flexibility and control for the school and mitigate some of potential negatives of a traditional operating lease.
1. Rental Plans
Rental Plans are best described as “use without ownership”. The school derive all the benefits of the equipment as if they owned it however they don’t have to find the capital outlay upfront to purchase it. The huge upside for these Agreements is the payments are “crystal clear” and there are no hidden surprises.
The length of the rental plan should be shorter than the useful life of the equipment and in most cases the equipment will be warrantied for the full length of the rental period so it provides the school with total “peace of mind”.
The biggest downsides to traditional operating leases are the end of lease options. You’re faced with either having to pay a large “residual” or “balloon” payment or return the equipment in good condition, either way leaving the school with a financial burden.
Rental Plans are our “go to” leasing solution for schools. They’re not only more transparent, but cost effective, and normally lead to a lower cost of investment than other solutions on the market. Have a look at our Rental Plans page for more information.
2. Finance Lease
Despite the DfE’s recommendation of using just Operating Leases, Finance Leases are actually allowed in state school. However, because they are classified as a form of ‘borrowing / credit’ they have to be signed off by the Secretary of State for Education, which as I’m sure you can imagine is quite difficult to get approved due to the number of requests they could potentially receive. This is why the Department for Education & Funding suggest Operating Leases over any other solutions.
Private or Independent schools and universities are allowed to sign finance leases which again avoid the residual payment issue.
3. Operating Lease
Yup, an alternative to an Operating Lease, can be an Operating Lease which is transparent.
Let me explain. A few weeks ago a school contacted me and asked to me to review an operating lease quotation they had been given on a piece of equipment costing £50,000. They’d been told the residual payment was ””between” 16-22%” I said to the Business Manager, “Let me save you the suspense, it’s 22%”. To be quoted on this basis was outrageous. At best the school would be faced with an additional bill for £8,000 but more likely they’d have to find another £11,000. Hardly reassuring or a great help when to comes to financial planning.
If you go down the operating lease route, our advice is get the leasing company to provide very clear end of lease arrangements including the required return conditions of the equipment if you’re planning on sending it back at the end.
Got a question or would like to learn some more? Get in touch with our specialist leasing team via 01625 415 400, the live chat in the bottom left corner or by sending an email to email@example.com.