Benefits of asset finance
Key benefits of asset finance solutions include:
- Spread the cost of vehicles, equipment, and premises fit outs over a number of years
- Facilities available to businesses of any age including new-starts
- Fixed monthly payments
- Can be quick and easy to set up
- Can release capital in assets you already own
- Options available for those with an impaired credit history
Purchasing equipment can form a large portion of a business’ capital expenditure. Asset finance enables businesses to conserve their cash flow for other essential business expenses and investment opportunities.
Facilities can be tailored to fit your specific needs with different types of finance products, negotiable deposit levels and can be structured over a range of repayment terms.
Financing your purchases can enable businesses to upgrade their equipment and technology more regularly and to a higher specification. By purchasing equipment that they may not have been able to afford otherwise, businesses can remain competitive and increase productivity.
What is asset finance?
Asset finance is a type of funding that enables individuals and businesses to acquire the assets they need to operate, such as vehicles, equipment, machinery, or technology, without having to pay for them upfront. Instead, individuals and businesses can spread the cost over a period of time through various asset finance facilities.
There are several types of asset finance facilities available, and each one is designed to suit different needs.
Some of the most common ones are:
- Hire purchase
- Leases
- Contract hire
- Asset refinance
One of the key differences between various types of asset finance is whether or not you have the opportunity to own the asset at the end of the facility. When we help clients arrange finance we ensure that the solution we source is appropriate for both your short and long term plans of purchasing and ownership.
Types of asset finance
Hire purchase
This is a type of asset finance where the business takes possession of the asset immediately, but pays for it in instalments over an agreed period of time. Once the final payment is made, ownership of the asset is transferred to the business. Payments are not VAT attracting.
Leases
An operating lease and a finance lease are two types of leases that businesses can use to acquire assets such as equipment, machinery, or vehicles.
The main difference between the two is the degree of ownership and control that the lessee has over the asset during the lease term, as well as the accounting treatment of the lease on the lessee’s financial statements. VAT is payable on the payments.
For profitable companies, it may be possible to offset rentals against taxable profits, making this a tax-efficient option for some businesses.
Operating lease
An operating lease is a type of lease in which the lessor retains ownership of the asset and the lessee uses it for a specific period of time. The lease payments cover the lessor’s cost of financing, depreciation, and other expenses associated with the asset. At the end of the lease term, the lessee can typically return the asset or renew the lease. There is not typically an option to purchase the asset.
Finance lease
A finance lease is a type of lease in which the lessee effectively takes ownership of the asset for the duration of the lease term. The lease payments cover the cost of the asset plus interest and any other financing charges. At the end of the lease term, the lessee may have the option to purchase the asset at a discounted price or return it to the lessor.
Contract hire
This is a type of asset finance that is typically used for vehicles. The business leases the vehicle for an agreed period of time and pays fixed rental payments. At the end of the lease, the business returns the vehicle.
Asset refinance
This involves using an asset that the business already owns as collateral for a loan. The business can then use the loan proceeds to invest in other assets or fund its operations. This is most typically used for hard assets that have been purchased recently, however some recently acquired soft assets and older hard assets may still be eligible.
How does asset finance work?
A typical asset finance journey is as follows:
- Choose an asset: The first step in the process is for you to choose the asset you want to acquire. This could be anything from a car or a van to a piece of machinery or technology.
- Agree on the purchase price: Once you have chosen the asset, you will need to agree on the purchase price with the supplier or vendor. This will typically include agreeing any installation/delivery costs.
- Plan for ownership: Decide how long you would want to spread repayments over and whether you would want to have the option of owning the asset at the end of the facility term.
- Send us the details: Send the quote you have received from the supplier or vendor, along with your business’ financial accounts and latest bank statements and we will source an appropriate option of finance for the equipment that matches your ownership plans.
- Select your finance option: we will source the most appropriate solution(s) for you to review the repayment terms and facility particulars. Once you’ve confirmed you’re happy with a solution we will arrange for documentation to be issued to and signed by you.
- Completion: Funds will be paid to the supplier or vendor (or to you in the case of refinance) and the asset finance facility will become live with the asset available for you to use.
