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.

How to guides

Select a filter option to find in-depth information about how to grow your business.

Beginners guides

The investment property finance guide | Apply for property finance Compare sole trader loans with Funding Options by Tide Apply for a small business loan with Funding Options by Tide The top business loans for women in the UK Small Business Loans Supply chain finance explained Merchant cash advance What is crowdfunding?Alternative finance options for businesses in the UK Cash flow for business owners How does Open Banking work?How to finance a startup company How to download a bank statement Business financing options: secured and unsecured loans Understanding fixed and floating charge debentures How can I improve my credit rating?Find and apply for property development finance | Your free guide Grow your business with commercial mortgage financing Commercial mortgages for businesses Buying property at auction: what do I need to know?Find a bridging loan | Get up to £20M to fund or renovate property Apply for revolving credit facility | The SME guide to fast funding Business cash advances: a loan you can get In 24 hours A comprehensive guide to refinancing your assets Get the latest equipment with an asset based loan A guide to invoice finance A guide to invoice finance Invoice factoring Invoice discounting guide Business loan guide Business loans Find an unsecured business loan | £1,000-£20M funding available Secured business loan guide Peer to peer lending – a guide Need to borrow money? 5 small business loans you can try How to apply for a commercial loan | Start applying today Apply for working capital finance | What is working capital?

Business Funding UK

Let us help you find the best business finance solutions in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Match with 120+ Lenders

It’s free to apply and it doesn’t affect your credit score

Expert help throughout the process

Loans from £1000 to £20M

Customer stories

Person looking at loan options on the computer

Types of loans

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 may 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

Business Loans

Sign up to Tide today

Funding Cloud

Funding Options: Advisors

We're hiring!

Business Loans Calculator

How to guides

Beginners guides

Business Funding UK

You might also like

Customer stories

Types of loans