Can a used machine be leased at all
Yes, used equipment is financed by most leasing companies. The difference against new equipment is that the financier assesses the item individually and usually asks for a document confirming its technical condition and value. Without that the application stalls.
That is why every machine is checked in our own service centre to current standards, and we give the load test result and the condition of A, B or C in the product listing and on the sales document. Together with our invoice that is normally enough for a leasing company as a basis for valuation. An inspection report, if the financier requires one, is issued with the extended service package. We describe the method in the service section.
Operating or finance lease
That is the first decision and it has tax consequences, not merely formal ones. Below are the differences that genuinely change the arithmetic.
| Feature | Operating lease | Finance lease |
|---|---|---|
| Who depreciates | the leasing company | you, the machine enters your fixed asset register |
| What is tax deductible | the whole instalment plus the down payment | depreciation allowances plus the interest part of the instalment |
| VAT | added to every instalment, reclaimed as you go | on the whole value, payable up front on handover |
| Buyout | a separate invoice at the end, usually 1 to 20 percent | ownership passes with the last instalment |
| Minimum term | at least 40 percent of the depreciation period | no such requirement |
| Who it suits | a company that wants a lower tax base now | a company that prefers to reclaim VAT once and depreciate quickly |
In practice workshops take the operating lease, because the whole instalment is deductible and there is no need to put up the full VAT at the start. A finance lease makes sense when you have a large VAT liability to settle or want to depreciate the machine in one go within the small taxpayer limit.
How to work out the instalment in a minute
The rate factor
Leasing companies quote a rate 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 1 percent buyout.
| Term | 10 percent down | 20 percent down | 30 percent down |
|---|---|---|---|
| 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 calculation. The real factor depends on your creditworthiness, how long your company has traded, the value of the item and current interest rates. Treat the table as a starting point for a conversation, not as an offer.
An example on a machine at 25 000 zloty net
Take a used 400 A MIG/MAG machine with a feeder and a cooler at 25 000 zloty net. A term of 36 months, a down payment of 10 percent, a buyout of 1 percent, operating lease.
| Item | Net | VAT 23 percent | Gross |
|---|---|---|---|
| Down payment, 10 percent | 2 500 zloty | 575 zloty | 3 075 zloty |
| Monthly instalment, 3.15 percent | 787.50 zloty | 181.13 zloty | 968.63 zloty |
| 36 instalments in total | 28 350 zloty | 6 520 zloty | 34 870 zloty |
| Buyout, 1 percent | 250 zloty | 57.50 zloty | 307.50 zloty |
| Total | 31 100 zloty | 7 153 zloty | 38 253 zloty |
The cost of the financing comes to 6 100 zloty net, that is 24.4 percent of the value of the machine spread over three years. That whole amount, together with the value of the machine, is a tax deductible cost, so under flat rate tax the real outlay is 19 percent lower.
Compare that with the instalment: 787.50 zloty net a month is less than one day of station time at a rate of 120 zloty an hour. That is the right measure, not the percentage cost of financing on its own.
The buyout and what comes with it
On an operating lease the buyout is a separate transaction at the end of the agreement. A low buyout, of the order of 1 percent, means higher instalments, but the machine becomes yours for a token amount. A high buyout, 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 agreement whether the buyout is your right or your obligation, and by what date you have to declare it. There are clauses under which failing to declare in time means the agreement is automatically extended for a further period.
Who can take a lease
Leasing is for businesses: sole traders, civil partnerships, limited liability companies and other forms. A private individual cannot take a lease, and there the route is a loan or rental.
The simplified procedure
The simplified procedure, on a statement of income, is usually available to a company with at least 6 to 12 months of trading, for financing of up to roughly 100 000 zloty. A company younger than six months will be offered a higher down payment, of the order of 20 to 40 percent, or additional security.
The minimum amount financed
The minimum amount financed for equipment is roughly 8 000 to 20 000 zloty net, depending on the leasing company. Below that an application usually does not go through, because the cost of administering the agreement exceeds the margin. On cheaper machines it makes more sense to buy for cash or to combine several items into one agreement.
How to compare two offers
Do not compare the instalments alone, because that is the easiest figure to level out. Add up all the payments: the down payment plus the instalment times the number of months plus the buyout plus one-off fees plus insurance for the whole term. Only that figure tells you what the money costs.
The sum of all payments, not the instalment
Take our example and two offers on the same machine at 25 000 zloty. The first: an instalment of 787.50 zloty, a down payment of 2 500 zloty, a buyout of 250 zloty, your own insurance at 400 zloty a year. The total is 32 300 zloty net. The second: an instalment of 750 zloty, a down payment of 2 500 zloty, a buyout of 250 zloty, but insurance inside the instalment at 62 zloty a month and an administration fee of 500 zloty. The total is 32 482 zloty net, even though the instalment looked lower.
The second thing to work out is the point at which the machine starts earning its instalment. At a rate of 120 zloty an hour and an instalment of 787.50 zloty, 6.6 hours of station time a month is enough. If the machine is going to run several hours a day, the instalment stops being an argument.
Three things that sink applications
The first is the absence of a document describing the condition of a used item. An invoice alone is not enough, because the leasing company has to know what it is financing. The description of the load test and the assigned condition of A, B or C, which we give on every machine, settle that immediately.
The second is arrears with the tax office or with ZUS, even small ones. The check is automatic and there is no room for explanations after the fact. Check your clearance certificates before submitting the application so as not to lose two weeks.
The third is a mismatch between the item and the company's PKD business classification. If your register entry shows 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 agreement before signing
- Insurance: whether it is included in the instalment or paid separately, and whether you may 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 processing the application, administration, an amendment, an assignment of the agreement 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 at what fee.
- Service: whether the agreement requires inspections at an authorised point and who pays for repairs.
- Place of use: some agreements require consent to take the equipment abroad or to change the address.
- Security: a blank promissory note, a guarantee from the owner, assignment of the insurance policy.
- The termination conditions and the penalties for late payment of an instalment.
Insurance imposed by the financier produces the most surprises. It can be twice as expensive as a policy you buy yourself, and over a three year agreement the difference runs to several thousand zloty. Ask about it at the offer stage, not at signing.
Leasing or rental
You take a lease when the machine is to stay in the business for years and you want to own it. You take rental for a job lasting a few months, for a seasonal peak, or when you are testing a technology before buying. With rental you pay more per month, but you are not tied to 36 instalments and you do not have to worry about reselling.
The third route is a cash purchase with your old machine in part exchange. We will value it as part exchange and deduct it from the new purchase, which with used premium equipment can cover the whole down payment. Added to that is the service package with a replacement machine, which has extra point under a lease agreement: the instalments run whether the machine is working or standing idle.
We will prepare the documents for your application
Choose a machine in the used MIG/MAG category and we will prepare a pro forma invoice, a condition description with the test result and a list of what is included, that is the full set a leasing company expects. We add an inspection report with the extended service package. Call us if you would like to work out the instalment for a particular amount and term first.