Is an Operating Leaseright for you?
With increasing budget cuts, more and more Local Education Authorities (LEA’s) and schools are turning to leasing to solve their equipment needs. But is an Operating Lease the correct funding solution for your school?Get in touch
What is an Operating Lease?
Operating leases are the go to solution recommended by the Department of Education & Funding(DfE) for schools to use. Operating Leases are a ‘Hire’ based solution that doesn’t include any form of ‘credit’. Under DfE guidelines, school’s aren’t allowed to enter into“lease to buy” arrangements.You can read more about the DfE’s guidelines here
The features of an Operating Lease
Cost effective (on the surface)With an Operating Lease, effectively the payments over the initial period of the agreement will appear to be less than the outright purchase of the equipment. However… (see below)
Regular Equipment RenewalsIf you’re planning on upgrading your equipment every few years, Operating Leases could be suitable for you. However, bear in mind you’ll need to make sure your equipment is returned in tip-top working condition, or you’ll face large additional charges at the end of your Agreement.
Operating Leases – What to watch for!
Despite the fact Operating Leases are recommended by the DfE, there could be considerable downsides which you need to be aware of. These include…
Restrictive and InflexibleOperating leases have strict guidelines in order to be compliant with the DfE’s requirements. This means they’re can be restrictive from a budget point of view and don’t provide the flexibility most schools require.
Hidden CostsOperating leases, by their very nature contain additional payments which don’t appear on the Agreement. So if you’re thinking of going down this route, make sure you’re aware of all the facts and figures.
Large Balloon PaymentIf you calculate the total amount payable over the initial term of the agreement, you may find you’ll be paying less than the outright purchase price of the goods. That’s because the rental payments are artificially subsidised as there is a large “residual” or “balloon” payment at the end of the Agreement, which the leasing companies have to charge in order to realise a profit.
Left With Nothing but a BillAt the end of the Operating Lease, you may be required to return the equipment in full working order, and if it isn’t you’ll be expected to pay large additional charges. Either way, you’ll either have no equipment in your school or be faced with an unexpected bill for returning goods. This means your school may end up spending £000’s on equipment, but have nothing to show for it when the agreement ends.
What are the alternatives?
So are there any tried and tested alternatives to an Operating Lease which are more suitable for schools? Yes! You can find more information about them below.