Leasing: Getting it right

Leasing has significant benefits for the education sector. It can allow them to get the latest equipment, without the large one-off payment needed for an outright purchase. What’s more, it can be used for a wide range of items – anything from computers to vehicles. If you’re thinking of replacing old equipment or buying in new resources, it is important to compare the cost of leasing with buying.

Operating and finance
Also be aware that there are two main types of leases – operating and finance – a general difference of which is that an operating lease would be used if the customer only needed the equipment for a certain period rather than its entire working life, whereas under a finance lease, the full value of the item would be paid over the lease period.
In its ‘Guidance on the use of Leases by Schools’, the Department for Education states that ‘an operating lease is the only type of lease a school should enter into.’ It views a finance lease as the ‘equivalent to you committing the school to a loan’, while an operating lease ‘involves the school paying a rental fee for the hire of an asset for a period of time, similar to a rental agreement.’
As with any financial undertaking, it is important to know whom you’re doing business with. Is the supplier of the new IT suite or mini-bus the one providing the finance, or is the credit coming from a completely different firm? If the finance company is a member of the Finance & Leasing Association (FLA), you will have the reassurance that our members follow the FLA’s Business Finance Code which sets out the high standards expected of them in their dealings with customers, and we also offer a conciliation service if needed.

The minimum lease period
Always look at the details of the agreement – including the minimum lease period. This is the shortest amount of time over which the school will have to continue to pay to use the equipment, so matching it to how long the school has tended to keep similar equipment in the past will help align the duration of your payment schedule to the useful life of the item.
Find out if the agreement includes maintenance – and who would provide it. Also, make sure you know what would happen if the maintenance firm went out of business, because your school wouldn’t want to be paying for broken equipment. Check the maintenance charges, and shop around to see if it would be cheaper getting this service elsewhere, and if the maintenance agreement is separate from the lease, check that it runs for the same duration and whether notice can be given.
Sometimes supplies such as paper can be included in the agreement – this is obviously handy if you’ve leased a photocopier, but do find out what would be supplied and by whom, and what would happen if that firm went out of business. Always shop around to see if it would be cheaper to buy your paper elsewhere.
If you are offered an upgrade during the minimum lease period, seek expert guidance from your Local Authority or the National Association of School Business as it might not be the best option at this point.

It’s important to add that leases are agreements to rent equipment, so at the end of the minimum period the school will not own the items concerned. You will usually have a choice of returning them, extending the rental period, or purchasing them. Check at the outset which options would be available – for instance would the payments change if you extended the rental period, and how this would compare to buying the items.
Leasing is a great value option for schools but it’s important to do your homework. Shop around to get a selection of quotes, and if an offer seems too good to be true, it probably is. Our basic checklist for Successful Leasing in Schools (see link below) is a good source of information but nothing beats getting some expert advice from your local authority or the National Association of School Business.

Further information