How to Use

1. Sign up – Email verification only. No onboarding forms or sales calls.
2. Enter inputs – Company profile, lease details, and financial metrics. Each field has clear guidance.
3. Download your OBR – Instant results with a professional PDF report for your audit file.

These fields determine your entity's credit risk profile and sector-specific adjustments.

Sector

What to enter: Select the industry that best describes your primary trading activity.

• Examples: Retail, Manufacturing, Construction, Professional Services, Hospitality, Healthcare, Technology.
• If diversified: Choose the segment that generates most revenue (e.g., if you're 60% manufacturing, 40% wholesale, choose Manufacturing).
• Why it matters: Some sectors (e.g., construction, hospitality) are considered higher risk by lenders and carry higher spreads.

Company Size

What to enter: Select Micro, Small, Medium, or Large based on UK company size definitions.

• Micro: Turnover ≤£632k, employees ≤10
• Small: Turnover ≤£10.2m, employees ≤50
• Medium: Turnover ≤£36m, employees ≤250
• Large: Above medium thresholds
• Where to find it: Check your latest filed accounts, directors' report or strategic report typically discloses size classification.
• Why it matters: Smaller companies generally face higher borrowing costs due to limited track record and financial resources.

Credit Rating

What to enter: External credit rating band if you have one (A, BBB, BB, B, CCC). If unrated, select NR.

• Most SMEs are NR (Not Rated). Only companies with formal ratings from agencies like Moody's, S&P, or Fitch should select a specific band.
• Don't guess: If unsure, choose NR. The OBR calculation uses your financial metrics to assess creditworthiness instead.
• Why it matters: Rated companies may receive a modest credit spread reduction; unrated companies rely on financial ratio analysis.

Years Trading

What to enter: Full years the entity has been trading (not dormant or in formation).

• Example 1: Incorporated 18 months ago, trading for 15 months → enter 1.
• Example 2: Established 8 years ago → enter 8.
• Start-ups (≤2 years): May face a "new business" premium reflecting higher risk of failure.
• Leave blank if: You don't have this information it's optional and has modest impact.

These fields describe the lease structure, asset type, and security arrangements.

Asset Class

What to enter: The type of asset being leased.

• Property: Office, warehouse, retail premises, industrial units.
• Vehicles: Cars, vans, trucks, buses, plant machinery (mobile).
• Equipment: Manufacturing machinery, construction equipment, medical devices.
• IT: Servers, computers, telecoms equipment, software licenses (if capitalised).
• Note: Property is typically modelled as unsecured (commercial lease) unless you have a fixed charge over the property itself (rare).

Security Type

What to enter: The security structure backing the lease.

• Unsecured: No specific security. Standard for most property leases and some equipment leases. Most common for UK SMEs.
• Floating Charge: General security over company assets (debenture). Often accompanies bank facilities.
• Fixed Charge (Asset): Specific charge over the leased asset (e.g., vehicle HP where lender retains title). Provides strongest security.
• Tip: If unsure, choose Unsecured for property leases. For vehicle HP or asset finance, choose Fixed Charge (Asset).
• Why it matters: Better security = lower spread. Unsecured leases carry highest spreads.

Payment Profile

What to enter: How often you pay and when (advance vs arrears).

• In Advance vs In Arrears: "In advance" means payment is due at the start of the period (e.g., 1 Jan for January, 1 Apr for Q2). "In arrears" means payment is due at the end of the period (e.g., 31 Jan for January, 30 Jun for Q2).
• Monthly in Advance: Pay at the start of each month (e.g., January payment made 1 Jan). This is the most common structure for asset finance, equipment leases, and hire purchase agreements (70%+ of UK asset finance).
• Monthly in Arrears: Pay at the end of each month (e.g., January payment made 31 Jan or early Feb). Less common overall (20-30% of asset finance), but used in some equipment and vehicle leases.
• Quarterly in Advance: Pay at the start of each quarter (1 Jan, 1 Apr, 1 Jul, 1 Oct). This is the UK standard for commercial property leases (60-70% of UK property leases) and required by most institutional landlords.
• When to use each option:
  • Property leases: Almost always quarterly in advance (UK market standard).
  • Asset finance/equipment/HP: Usually monthly in advance, sometimes monthly in arrears.
  • Vehicle leases: Typically monthly in advance.
• Check your lease agreement: Look for "payable in advance" or "payable in arrears." If the lease doesn't specify, quarterly in advance is the safe assumption for property; monthly in advance for equipment/vehicles.
• Why it matters: Payment timing affects the present value (PV) calculation. In-advance payments reduce exposure slightly because the lender receives cash earlier in the period, lowering credit risk. The OBR calculator applies a small spread adjustment based on payment timing.

Lease Term (Years)

What to enter: Total lease duration from commencement to expiry (or first break clause if reasonably certain to break).

• Examples: 5-year property lease → 5. 3.5-year vehicle lease → 3.5.
• Use decimals for months: 2 years 6 months = 2.5. 4 years 3 months = 4.25.
• Renewal options: Include only if reasonably certain to exercise (e.g., penalty for not renewing, critical location). Otherwise use initial term only.
• Why it matters: Longer terms = higher rates (more risk, longer lock-in). Term affects base rate tenor selection.

Annual Lease Payments (£)

What to enter: Total you pay per year, excluding VAT.

• Example 1: £5,000/month + VAT → annual = 60000 (5,000 × 12).
• Example 2: £12,000/quarter + VAT → annual = 48000 (12,000 × 4).
• Always ex-VAT: Don't include the VAT amount. Check your invoice or lease schedule for the "net" figure.
• Service charges: Include if they're part of the lease liability (i.e., contractual and unavoidable). Exclude variable charges like utilities.
• Why it matters: Used to calculate exposure (PV) if you don't provide it manually. Higher rent = higher exposure = potentially higher spread.

Residual / Balloon % (Optional)

What to enter: Final balloon payment or guaranteed residual value, as a percentage of the original asset cost.

• Example: £100k vehicle, £20k balloon at end → enter 20.
• When to use: Mainly for vehicle HP, asset finance with residual guarantees, or PCP-style structures.
• Property leases: Typically leave blank (no balloon).
• Impact: Higher balloons increase risk (you're deferring repayment), which can add to the spread.
• Leave blank if: No balloon or residual payment applies.

Rent Deposit Months (Optional)

What to enter: Number of months' rent held as a deposit (property leases only).

• Example: 3 months' rent (£15k) held as deposit → enter 3.
• Common practice: UK commercial leases often require 3-6 months' rent deposit.
• Impact: Provides modest security to landlord; marginally reduces risk and spread.
• Leave blank if: No deposit or not a property lease.

Exposure Override (£, Optional)

What to enter: Total lease exposure if you've already calculated the present value (PV) of future lease payments.

• When to use: You have a specific PV figure from your accountant or finance team (e.g., they've already discounted lease payments at a provisional rate).
• Most users leave blank: Lease Rater will calculate PV automatically from annual rent, term, payment profile, and a provisional OBR (see detailed section below).
• Example: You've calculated PV = £250,000 using a 5% discount rate → enter 250000.
• Why override? If you want to force a specific exposure for sensitivity analysis or to match an existing accounting treatment.

These fields build a picture of your company's financial health and creditworthiness. Use your latest filed accounts or most recent management accounts.

General Tips for Financials

• Use full-year figures: 12-month period (not half-year or quarterly).
• Consistency: All figures should come from the same period (e.g., all FYE 31 Dec 2024).
• Parent vs subsidiary: Use the entity that will hold the lease. If it's a subsidiary but parent-guaranteed, consider using group figures (consult your accountant).
• Negative numbers: Allowed for EBITDA, EBIT, TNW. Enter negative sign (e.g., -45000 for £45k loss).

What Metrics Are Calculated from Your Inputs

Lease Rater calculates 14 industry-standard financial metrics from your inputs:

Profitability Metrics

• EBITDA Margin: (EBITDA / Revenue) × 100
• EBIT Margin: (EBIT / Revenue) × 100
• Return on Equity (ROE): (Net Income / TNW) × 100

Liquidity Metrics

• Current Ratio: Current Assets / Current Liabilities
• Quick Ratio: (Current Assets - Inventory) / Current Liabilities
• Cash Ratio: Cash / Current Liabilities

Leverage Metrics

• Total Debt / TNW: Total Debt / Tangible Net Worth
• Total Debt / EBITDA: Total Debt / EBITDA (years to repay)
• Net Debt / EBITDA: (Total Debt - Cash) / EBITDA

Coverage Metrics

• Interest Coverage Ratio (ICR): EBIT / Interest Expense
• Fixed Charge Coverage (FCC): EBITDA / (Interest + Capex)

Cash Flow Metrics

• Free Cash Flow (FCF): EBITDA - Interest - Tax - Capex
• FCF / Total Debt Ratio: FCF / Total Debt (debt repayment capacity)

Balance Sheet Strength

• Cash Buffer: Cash / Total Debt (liquidity cushion)

Each metric is scored using 6 risk bands: Excellent, Strong, Satisfactory, Fair, Weak, Vulnerable. Your PDF report shows which band you fall into for each metric.

Revenue (£)

What to enter: Total turnover / revenue for the year.

• Where to find: P&L, first line, typically labelled "Turnover" or "Revenue."
• Example: £3,250,000 → enter 3250000.
• Don't: Deduct cost of sales. We want the top-line figure.

EBITDA (£)

What to enter: Earnings before interest, tax, depreciation, and amortisation.

• If reported: Look for "EBITDA" or "Adjusted EBITDA" in management accounts.
• If not reported: Calculate: EBITDA = EBIT + Depreciation + Amortisation.
• Example: EBIT £200k, Depreciation £50k, Amortisation £10k → EBITDA = 260000.
• Negative EBITDA? Enter negative number (e.g., -50000 for £50k loss).
• Why it matters: EBITDA is used in 6 different metrics:
  • EBITDA Margin (profitability)
  • Total Debt/EBITDA and Net Debt/EBITDA (leverage)
  • Fixed Charge Coverage (coverage)
  • Free Cash Flow (cash flow)
  • Exposure ratios (loan-to-EBITDA)

EBIT (£)

What to enter: Operating profit (after depreciation and amortisation, before interest and tax).

• Where to find: P&L- typically labelled "Operating Profit" or "Profit from Operations."
• Example: Operating profit £180k → enter 180000.
• Why needed? Used to calculate interest cover ratio (EBIT / Interest Expense).

Interest Expense (£)

What to enter: Total finance costs for the year.

• Where to find: P&L- "Finance Costs" or "Interest Payable" line.
• Include: Bank loan interest, overdraft interest, HP interest, lease interest (under old rules).
• Exclude: Interest receivable/income (we want gross interest paid, not net).
• Example: £25,000 interest expense → enter 25000.
• Zero interest? Enter 0 if your company has no borrowings. The system will handle this gracefully.

Total Debt (£)

What to enter: All interest-bearing borrowings (current + non-current).

• Include: Bank loans- overdrafts (if drawn), hire purchase, finance leases, shareholder loans (if interest-bearing).
• Exclude: Trade creditors, accruals, deferred tax, non-interest-bearing shareholder loans.
• Where to find: Balance sheet- sum of "Bank Loans" + "Hire Purchase" + "Finance Leases" (current + non-current portions).
• Example: £150k term loan + £30k HP = 180000.
• Important: Don't include the NEW lease you're calculating an OBR for. Use existing debt only.

Cash & Equivalents (£)

What to enter: Cash at bank plus short-term liquid investments.

• Where to find: Balance sheet- "Cash at Bank" or "Cash and Cash Equivalents."
• Include: Current account balances, short-term deposits (≤3 months).
• Exclude: Restricted cash, term deposits >3 months.
• Example: £45,000 in bank accounts → enter 45000.

Current Assets (£)

What to enter: Total current assets from the balance sheet.

• Where to find: Balance sheet- "Current Assets" total.
• Includes: Cash, receivables (debtors), inventory (stock), prepayments.
• Example: Current assets total £320,000 → enter 320000.

Current Liabilities (£)

What to enter: Total current liabilities from the balance sheet.

• Where to find: Balance sheet- "Current Liabilities" total.
• Includes: Trade creditors, accruals, current portion of loans, VAT payable, PAYE/NI payable.
• Example: Current liabilities total £180,000 → enter 180000.
• Why it matters: Used to calculate current ratio and working capital position.

Inventory (£)

What to enter: Value of stock held at year-end.

• Where to find: Balance sheet- "Stock" or "Inventories."
• Example: Stock £85,000 → enter 85000.
• Service companies: Enter 0 if no stock held (e.g., consultancies, professional services).
• Why needed? Used to calculate quick ratio (current assets - inventory) / current liabilities.

Tangible Net Worth (TNW, £)

What to enter: Share capital + reserves - intangible assets.

• Formula: TNW = Total Equity - Intangible Assets - Goodwill.
• Where to find: Balance sheet- take "Total Equity" then subtract "Intangible Assets" and "Goodwill" if present.
• Example: Equity £500k, Goodwill £80k → TNW = 420000.
• Negative TNW? If company has net liabilities, enter negative (e.g., -50000). This significantly increases credit risk.
• Why it matters: Used to calculate leverage ratio (Total Debt / TNW). Key solvency metric.

Depreciation (£, Optional)

What to enter: Annual depreciation charge.

• Where to find: P&L notes - depreciation charge for the year.
• When estimated: If you don't provide depreciation AND don't provide capex, Lease Rater estimates capex at 3% of revenue. Providing depreciation gives a better estimate (capex ≈ depreciation for steady-state businesses).
• Impact: Used to derive EBIT (if not provided directly) and to estimate capex for Fixed Charge Coverage and Free Cash Flow calculations.
• Leave blank if: You've already provided EBIT and capex directly - depreciation not needed in this case.

Capex (£, Optional)

What to enter: Capital expenditure - cash spent on fixed assets during the year.

• Where to find: Cash flow statement - "Purchase of tangible fixed assets" or "Capital expenditure".
• Why optional? If not provided, Lease Rater estimates using industry-standard methods:
  • Primary method: Uses depreciation as proxy (maintenance capex ≈ depreciation)
  • Fallback method: Uses 3% of revenue (UK SME industry average)
• Impact: Used in Fixed Charge Coverage (EBITDA / (Interest + Capex)) and Free Cash Flow (EBITDA - Interest - Tax - Capex). Without capex, these metrics would be overstated.
• When to override: If your business has unusually high or low capex needs (e.g., growth phase with major investments, or asset-light services).
• Estimation flags: PDF report shows "(Capex estimated)" if we used an estimate, ensuring transparency.

Tax Paid (£, Optional)

What to enter: Corporation tax actually paid during the year (cash basis).

• Where to find: Cash flow statement - "Tax paid" line.
• Why optional? If not provided, Lease Rater estimates at 19% of EBIT (UK corporation tax rate).
• Impact: Used in Free Cash Flow calculation (EBITDA - Interest - Tax - Capex).
• When to override: If you have actual tax paid figures (more accurate than estimates), or if you have losses carried forward (tax paid = £0).
• Estimation flags: PDF report shows "(Tax estimated)" if we used an estimate.

SONIA Base Override (%, Optional)

What to enter: Manual base rate override if you want to force a specific risk-free rate.

• Default (recommended): Leave blank. Lease Rater automatically maps your lease term to the appropriate SONIA term structure (1Y, 3Y, 5Y, 10Y).
• When to override: Sensitivity analysis, comparing to a specific point in time, or if you have a contractual base rate reference.
• Format: Enter annual percentage (e.g., 4.75 for 4.75% p.a.).
• Example: If you want to lock OBR to 4.75% base + spread, enter 4.75.

This is the most technical part of the OBR process. If you leave Exposure Override blank, Lease Rater calculates the present value (PV) of your lease payments automatically. Here's how it works:

The Challenge: Circular Dependency

To calculate the OBR, we need to know the lease exposure (PV). But to calculate PV, we need to discount future payments using... the OBR. Classic circular reference!

The Solution: Iterative Convergence

Lease Rater uses a smart iterative algorithm:

1. Pass 1 (Provisional): Calculate initial OBR using exposure = annual rent × term (undiscounted proxy).
2. Pass 2 (First refinement): Use Pass 1 OBR to discount lease payments → get refined PV. Re-calculate OBR with new PV.
3. Pass 3+ (Convergence): Repeat until OBR stabilizes (rate change ≤10 basis points OR PV change ≤1%).
4. Safety limit: Maximum 8 iterations. In practice, convergence happens in 2-4 passes.

Annuity Formulas Used

For payments in arrears (ordinary annuity):

PV = P × [(1 - (1 + r)^-n) / r]

Where:

• P = payment per period (monthly or quarterly)
• r = discount rate per period (OBR ÷ periods per year)
• n = total number of periods (years × periods per year)

For payments in advance (annuity-due):

PV = P × [(1 - (1 + r)^-n) / r] × (1 + r)

The (1 + r) factor accounts for earlier timing (payments at period start, not end).

Practical Example

Scenario: 5-year property lease, £60,000/year, quarterly in advance.

1. Initial proxy: Undiscounted exposure = £60k × 5 = £300k.
2. Pass 1 OBR: Based on £300k exposure → e.g., 7.25%.
3. Discount payments: £15k/quarter (£60k ÷ 4), 20 quarters, 7.25% annual = 1.76% per quarter, in advance.
   PV = 15,000 × [(1 - 1.0176^-20) / 0.0176] × 1.0176 = £256,743
4. Pass 2 OBR: Based on £257k exposure → e.g., 7.10% (lower exposure = slightly lower spread).
5. Re-discount: With 7.10% → PV = £258,102.
6. Pass 3: Rate change = 15 bps, PV change = 0.5% → within tolerance → converged!
7. Final OBR: 7.10% (mid), range 6.60% - 7.60%.

Important Rules for PV Calculation

DO:

• ✅ Use ex-VAT rent amounts. VAT is not part of the lease liability.
• ✅ Set payment timing (advance/arrears) correctly. This affects PV by ~1-2% of rent.
• ✅ Use annual rent figure consistently (don't mix monthly and annual).

DON'T:

• ❌ Subtract rent deposits from PV. Deposits are handled separately in the Security/Structure pillar (they reduce risk, not exposure).
• ❌ Add the NEW lease's PV to "Total Debt" field. Use existing debt only. The new lease liability will be recognised when you adopt FRS 102 (2026), but for OBR calculation purposes, it's the exposure we're measuring, not existing debt.
• ❌ Include VAT in rent figures. This inflates the exposure and gives an incorrect OBR.

When Convergence Might Take Longer

• Very long leases (15+ years): Higher sensitivity between rate and PV.
• Balloon payments: Back-loaded cash flows make PV more rate-sensitive.
• Edge cases: Near min/max spread thresholds (convergence has diminishing effect).

In these cases, the algorithm uses a small damping factor (blending old and new estimates) to avoid oscillation. Final result is still robust and auditable.

What You'll Receive

• Headline OBR: Mid-point rate (e.g., 7.35%).
• Defensible Range: Low and high bounds (e.g., 6.85% - 7.85%) for sensitivity analysis and professional judgement.
• Component Breakdown: How much each pillar (Financial 45%, Security 30%, Sector/Size 15%, Exposure 10%) contributed to the total spread.
• 14 Financial Metrics: Your score for all 14 metrics with risk band classifications (Excellent/Strong/Satisfactory/Fair/Weak/Vulnerable).
• Key Drivers: Narrative bullets explaining what pushed the rate higher or lower, with examples across multiple metrics:
  • "Strong EBITDA margin of 18% and ICR of 8.2× support lower spread"
  • "High Net Debt/EBITDA of 3.8× and low cash buffer of 8% add risk premium"
  • "Excellent current ratio of 2.4× and quick ratio of 1.9× demonstrate strong liquidity"
• Professional PDF: Complete report with methodology, assumptions, SONIA metadata, and audit trail. Download and file in working papers.

Using the PDF Report

• Audit file: Include in lease accounting working papers as evidence of OBR determination.
• Board/management: Support lease vs buy decisions by showing borrowing-equivalent cost.
• Lenders: If renegotiating covenants post-FRS 102 adoption, show credible discount rates used.
• Multiple leases: Consistent methodology across portfolio supports audit quality and efficiency.

• Batch similar leases: If you have 10 vehicles on identical 3-year terms, run one OBR and apply consistently. Document the decision.
• Retain PDFs: Store in lease accounting files. If auditor asks "how did you get 7.35%?", you have a professional report to hand over.
• Re-run for material changes: If your credit profile deteriorates significantly (e.g., covenant breach, loss-making year), re-run OBR for new leases. Existing leases keep their original OBR unless remeasured.
• Sensitivity analysis: Use the range (low/mid/high) to model impact on balance sheet and P&L. Show auditors you've considered reasonable scenarios.
• Document policy: Record in accounting policies: "OBRs determined using Lease Rater methodology, reflecting SONIA base + entity-specific credit spread. Rates reviewed annually or on material credit changes."

What if my financials are very different from last year?

Use the most recent full-year figures. If there's been a material change (e.g., acquisition, divestment, restructuring), consider using pro-forma or adjusted figures that better reflect current trading. Discuss with your accountant.

Can I use group financials for a subsidiary lease?

If the subsidiary is guaranteed by the parent or operates as a single economic unit (cash pooling, shared facilities), yes. If the subsidiary is ring-fenced or separately financed, use subsidiary-only figures.

What if I have multiple leases with different terms?

Run separate OBRs for materially different profiles. A 2-year vehicle lease and a 10-year property lease should have different OBRs (term mismatch). However, 5 vehicles on identical 3-year terms can share one OBR.

Do I need to update OBRs every year?

No. Once a lease is recognised, the OBR is locked in (unless you remeasure the liability, e.g., lease modification). You only need new OBRs for new leases entered during the year. However, if your credit profile changes materially, auditors may ask you to reconsider.

What if the rate looks too high or too low?

Check your inputs:

• Too high? Common causes: negative EBITDA, very high leverage (Debt/TNW >5x), very small company (micro), weak sector (hospitality, construction).
• Too low? Common causes: strong financials (low leverage, high ICR), large company, good security (fixed charge), stable sector.

The range gives you flexibility. If the mid-point is 7.35% but you believe (and can justify) your credit is better, use the low end (6.85%). Document your reasoning.

You now understand every input field and how the calculation works. Time to generate your audit-ready OBR.

Start your calculation now