Can a used machine be taken on lease
Yes, used equipment is financed by many leasing companies. The difference against a new one is that the lessor assesses the item individually and usually asks for a document confirming its technical condition and its value. Without that the application stands still.
That is why we check every machine in our service workshop against the current standards, and we give the result of the load test in the product card and on the sales document. Together with an invoice from us this is the set that leasing companies ask for most often with used equipment. The decision is taken by the lessor anyway, according to its own procedure and its assessment of your company, so our documents speed the application up but do not settle it. The inspection report, if the lessor requires it, we issue with the extended service package. We describe the method in the service section.
Operating or finance lease
This is the first decision and it has tax effects, not only formal ones. Below are the structural differences between the products.
| Feature | Operating lease | Finance lease |
|---|---|---|
| Who depreciates | the leasing company | you, the machine enters your fixed asset register |
| What goes into costs | the whole instalment plus the initial payment | depreciation write offs plus the interest part of the instalment |
| VAT | added to every instalment, you deduct it as you go | on the whole value, payable up front at handover |
| Final purchase | a separate invoice at the end, usually 1 to 20 percent | ownership passes after the last instalment |
| Minimum term | at least 40 percent of the depreciation period | no such requirement |
| For whom | a company that wants a lower tax base now | a company that prefers to deduct VAT once and depreciate fast |
The table shows the difference in the construction of the product. Confirm the tax effect for your company with your accountant, because it depends on the form of taxation, on whether you have income to reduce and on the wording of the specific contract.
In practice workshops take the operating lease, because the whole instalment goes into costs and you do not have to put out the whole VAT at the start. The finance lease is chosen when a company has a large output VAT to settle or wants to depreciate the machine in one go.
How to count the instalment in a minute
The instalment factor
Leasing companies give an instalment factor, that is the percentage of the net value of the item paid every month. You multiply the value of the machine by the factor and you have the instalment. Below are indicative factors for used equipment, with a final purchase of 1 percent.
| Term | Initial payment 10 percent | Initial payment 20 percent | Initial payment 30 percent |
|---|---|---|---|
| 24 months | 4.45 percent | 4.00 percent | 3.55 percent |
| 36 months | 3.15 percent | 2.82 percent | 2.50 percent |
| 48 months | 2.50 percent | 2.24 percent | 1.98 percent |
These are indicative values, for a first account. The real factor depends on your creditworthiness, the record of your company, the value of the item and the current interest rates. Treat the table as a starting point for a conversation, not as an offer.
An example on a machine for 25,000 PLN net
Take a used MIG/MAG machine of 400 A with a wire feeder and a cooling unit for 25,000 PLN net. A term of 36 months, an initial payment of 10 percent, a final purchase of 1 percent, an operating lease. The table shows all the payments together: the initial payment, the sum of the instalments and the final purchase.
| Item | Net | VAT 23 percent | Gross |
|---|---|---|---|
| Initial payment, 10 percent | 2,500 PLN | 575 PLN | 3,075 PLN |
| Monthly instalment, 3.15 percent | 787.50 PLN | 181.13 PLN | 968.63 PLN |
| Sum of 36 instalments | 28,350 PLN | 6,520 PLN | 34,870 PLN |
| Final purchase, 1 percent | 250 PLN | 57.50 PLN | 307.50 PLN |
| Total of payments: initial payment, instalments, final purchase | 31,100 PLN | 7,153 PLN | 38,253 PLN |
The cost of the financing is 6,100 PLN net, that is 24.4 percent of the value of the machine spread over three years. With an operating lease the instalments and the initial payment usually go into tax deductible costs, but how much of that comes back to you in tax, count with your accountant for your form of taxation and your own situation. Do not put any tax saving into the account before you have confirmed it.
What to compare the instalment with
The instalment is compared with the contribution margin, not with the revenue from the hourly rate. The workshop rate is revenue: it holds consumables, gas, energy and the pay of the welder, so that is not the number that pays the instalment.
An example with the assumption stated: a contribution margin of the station of 60 PLN per hour of arc, after consumables, gas, energy and work. An instalment of 787.50 PLN net then needs about 13 hours of arc a month, because 787.50 divided by 60 gives 13.1. Put in your own margin and not your own rate: at a margin of 40 PLN it comes to about 20 hours, at a margin of 90 PLN to about 9 hours. We use the same model in the whole article, including the comparison of offers below.
The final purchase and what goes with it
With an operating lease the final purchase is a separate transaction at the end of the contract. A low final purchase, of the order of 1 percent, means higher instalments, but the machine becomes yours for a symbolic amount. A high final purchase, 20 percent and more, lowers the instalment, but at the end you have to have the cash or put the machine up for resale.
Check in the contract whether the final purchase is your right or your obligation, and by what date you have to declare it. There are clauses under which a failure to declare in time means the contract is extended automatically for another term.
Who can take a lease
A lease is a product for companies: a sole trader, a civil law partnership, a limited liability company and the remaining forms. With some lessors a private person will not get a lease offer, and then the route is a loan or rental. This is not a rule binding on everyone: the conditions and the range of customers are set by each lessor separately, so ask a specific partner about it before you file an application.
The simplified procedure
A simplified procedure, on a declaration of income, is offered by many lessors to companies with a record of a few months, for financing of roughly up to 100,000 PLN; the thresholds of record and of amount differ between companies. A company younger than half a year usually gets a proposal with a higher initial payment, roughly 20 to 40 percent, or with additional security. Check the specific thresholds with the partner you talk to, and ask for the date from which the conditions apply.
The minimum value of the financing
The minimum value of the financing depends on the leasing company: some finance equipment from a few thousand PLN net, others set a threshold of 10,000 to 20,000 PLN. With cheap machines check the offer of the specific partner before you file an application. Sometimes it makes more sense to buy for cash or to join the purchase of several items into one contract.
How to compare two offers
Do not compare the instalments alone, because that is the easiest number to level out. Count the sum of all payments: the initial payment plus the instalment times the number of months plus the final purchase plus one off fees plus the insurance for the whole term. Only that amount says how much the money costs.
The sum of all payments, not the instalment alone
Take our example and two offers on the same machine for 25,000 PLN. The first: an instalment of 787.50 PLN, an initial payment of 2,500 PLN, a final purchase of 250 PLN, your own insurance for 400 PLN a year. The total is 32,300 PLN net. The second: an instalment of 750 PLN, an initial payment of 2,500 PLN, a final purchase of 250 PLN, but insurance inside the instalment at 62 PLN a month and an administrative fee of 500 PLN. The total is 32,482 PLN net, although the instalment looked lower.
The second thing to count is the moment at which the machine starts to earn the instalment. You count it with the same model as above: the instalment divided by the contribution margin gives the number of hours of arc a month. At an instalment of 787.50 PLN and a margin of 60 PLN an hour that is about 13 hours, at an instalment of 750 PLN about 12.5 hours. If the machine is to work a few hours a day, both offers fit within the margin and the total of the payments decides, not the instalment alone.
Three things that sink applications
The first is the lack of a document describing the condition of the used item. An invoice alone is often not enough, because the leasing company has to know what it finances. The description of the load test, which we give with every machine, usually closes that point, although the final set of documents is named by the lessor.
The second is arrears at the tax office or at ZUS, the Polish social insurance institution. With some lessors the check is automatic and even a small arrear holds the application up; others look at the amount and the title. Treat this as a risk, not as a rule of the whole market, and check the certificates before you file, so that you do not lose two weeks.
The third is a mismatch between the item and the PKD codes of the company, that is the Polish classification of business activity. If your register holds no activity connected with welding or metalworking, the analyst will ask for a justification. The answer is simple, but it is better to have it ready together with a description of the jobs the machine is to serve.
What to check in the contract before you sign
- Insurance: whether it is included in the instalment or paid separately, and whether you can bring your own policy. This is an item of the order of 1 to 3 percent of the value a year.
- One off fees: for the handling of the application, administrative, for an amendment, for the assignment of the contract to another company.
- A fixed or a variable instalment: with a variable one check which index it is tied to and how often it is recalculated.
- Early repayment: whether it is possible at all, after how many instalments and with what fee.
- Service: whether the contract requires inspections at an authorised point and who pays for repairs.
- Place of use: some contracts require consent for taking the equipment abroad or for a change of address.
- Security: a blank promissory note, a guarantee of the owner, an assignment from the policy.
- The conditions of termination and the penalties for a delay in paying an instalment.
The most surprises come from insurance imposed by the lessor. It is sometimes twice as expensive as a policy you buy yourself, and on a three year contract the difference reaches a few thousand PLN. Ask about it at the offer stage, not at the signing.
Lease or rental
You take a lease when the machine is to stay in the company for years and you want to own it. You take rental for a job of a few months, for a seasonal peak or when you test a technology before buying. In rental you pay more a month, but you do not tie yourself to 36 instalments and you do not worry about resale.
A third route is a cash purchase with the old machine settled against it. We value it in our buy back and deduct it from the new purchase, which with used premium equipment can cover the whole initial payment. On top of that comes the service package with a replacement machine, which under a lease contract has an extra sense: the instalments run whether the machine stands still or not, and the contribution margin stops flowing on the day of the breakdown.
We will prepare the documents for the application
Choose a machine in the category used MIG/MAG, and we will prepare a pro forma invoice, a description of the condition with the result of the test and a list of the set. The inspection report we add with the extended service package. If the lessor asks for additional documents, we send them as we go. Call if you want first to count the instalment for a specific amount and term and to set it against your contribution margin.