frequently
Asked Questions (FAQs)

1. Why lease and not buy?

• When you lease, cash is not tied up in equipment. Instead, money is available for opportunities such as marketing, working capital, investment or seasonal cash flow needs.
• You save 30% corporate tax because of leasing as the lease is an expense against your operating profit.
• You concentrate on the core business of your organization.
• No heavy assets on your balance sheet
• Assets can be bundled with auxiliary services such as insurance, service, fuel, software thus focus on use of asset as opposed to raising working capital after purchase of asset.

2. Who handles the maintenance and the service?

We will work with the supplier of the assets to get the maintenance schedule and the pricing in which we will include in our rentals. We will then have a service level agreement with the supplier in regards to the maintenance so the assets are regularly serviced.

3. Who is responsible if the equipment breaks down?

You will be responsible if your leased equipment is lost, stolen or damaged. However we shall ensure that the equipment has the most comprehensive insurance so there is minimal cash outflow from you.

In case of any normal wear and tear we shall work with you for replacement either under full maintenance programs or exceptional replacements.

4. Can I own the asset after the period?

In an operating lease the asset will not transfer ownership because when calculating the lease rentals, a residual value is factored in and so these payments do not cover the full cost of the asset. If the user of the asset (lessee) wishes to purchase the equipment at the end of the lease they can only do so at the fair market value or use a third party to purchase to avoid KRA claiming the tax saving they made and penalizing them (tax clawback).

5. What is the typical interest rates in an operating lease?

In the lease program we do not offer interest rates but sell specific lease rental charge for the requested assets. However three factors affect our lease rental i.e. cost of the asset, cost of the funds that we have to use to pay the supplier and the residual position that we take on the assets. The information we would require to enable us give the customer a lease rental would be type of asset (model, supplier etc), cost of the asset, desired lease tenor and expected action at the end of the lease.

6. What are my options at the end of the lease?

You shall then have three (3) option upon giving written notice:

1. To renew the lease.
2. To return the equipment with nor further obligation or for upgrade.
3. To purchase the equipment outright but through a third party or at fair market value

7. Can I return the equipment and stop payments?

No, the lease is non-cancellable. However we may offer you an early termination option where you will be required to pay the present value of the outstanding rentals and return the equipment when a minimum tenor of 12 months is remaining on your contract.

8. What are the typical documents that are needed for evaluation of the lease facility?

• Last 2 years audited accounts and latest management accounts (for requests above 10 million)
• Latest management accounts (for requests above 10 million)
• 12 months bank statements from all your active accounts
• Cash flow projections for new projects
• Copy of certificate of incorporation, company pin, Memos and articles of association and directors pin and ID’s.
• Comprehensive company profile with bios of directors and key management staff
• Copy of trading license
• Aged debtors and creditors listing for the last 6 months
• Latest CR12
• Latest tax compliance certificate

9. What is the difference between an operating lease and a finance lease?

An operating lease is a contract where the lessee (user of the asset) pays for partial cost of the asset while a finance lease is a lease where the lessee pays for the full cost of the asset over a given period of time. In Kenya, the hire purchase (asset finance) is a form of a finance lease.

10. Why is sum of rentals greater than cost of the asset (Leasing is more expensive)?

When evaluating the lease rentals from an absolute basis this may appear the case. However as lessors, we are providing an asset with today’s money upfront but to be repaid with future cash flows and so the time value of money has to be considered and which will always show the lease rentals are lower than the cost of the asset.

11. What documents does a client sign when they enter into a lease agreement?

The client signs a lease agreement and rental schedules. The Master Lease Agreement covers all the leases of all the assets that the client will lease and a Rental Schedule for each asset the client leases. The documents are to be executed in doubles.

12. What is the security for the lease?

There is no security required for in the lease since the assets remain fully owned by the lessor. However we may ask for personal guarantees on the lease payments.

13. How long are the leases offered for?

This depends with the type of equipment being leased and its life span. The operating lease covers a shorter term than the useful life of the asset so the number of years must not be equal to or exceed the useful life of the asset. The minimum lease tenor is however 3 months.

14. What assets can you lease?

You can lease any type of depreciating assets which at the end of the given tenure will still have a value in which they can be disposed of at or extended under a secondary lease/renewal. Thus land and buildings are not catered for under operating leases.

15. What other charges would a client pay apart from the lease rentals?

We charge a lease documentation fee that is a percentage (2%) of the approved lease facility and a refundable rental deposit equivalent to 2 months rentals, which we hold for the full duration of the lease.