If your business is looking to fund the purchase of new or replacement machinery, vehicles or equipment then asset finance could be the ideal solution. Broadly speaking, asset finance can be broken down into two categories; funding that gives your business access to new assets, or lending that enables you to release cash from any existing assets that you own.
The great thing about asset finance is you can pretty much fund anything that your business needs including; machinery and equipment, vehicles, office furniture, IT, software and technology. With the asset finance market growing, there is a wide variety of lenders who are looking to finance your business needs.
The Various Different Types of Asset Finance
Buying new or replacement machinery, vehicles or equipment can be costly, but may also be a necessary expense that a business needs to move forward. Paying cash for these assets is sometimes not possible, causing cash flow issues or quite simply, a business may not have the working capital to cover the expense. That’s where asset finance can help.
Hire Purchase allows a business to purchase an asset by paying for it in instalments over a set period of time and is most typically used to obtain machinery, equipment, vehicles or any asset that has a resale value. With a hire purchase agreement, you are considered the owner of the asset and therefore, responsible for any maintenance or insurance costs associated with it. For tax purposes, you can offset the hire purchase interest and charges against pre-tax profits, reclaim VAT and can usually claim capital allowances.
Finance Lease agreements are effectively a long-term rental arrangement whereby you pay for the use of an asset over a set period of time. Over the term, you will pay the full cost of the asset plus interest, and at the end of the agreement you can continue using the asset by entering into a secondary rental period, return the asset to the provider or sell the asset, keeping a proportion of the sale value. Finance leases do not require a large upfront outlay, the repayments and lease periods can often be tailored to meet your business need and again, for tax purposes VAT can be reclaimed and the rental payments can usually be offset against pre-tax profits.
Operating Lease arrangements are very similar to finance lease agreements. An asset is rented from a provider for a set period of time but unlike a finance lease, this is usually only for part of the assets useful life and you do not pay for the full value of the item. Instead, you pay rental on a percentage of the original cost of the asset, usually the difference between the purchase price and the end of term value. At the end of the term, you can either re-rent the asset, purchase it outright or return it to the provider. An operating lease gives you quick access to an asset without a large upfront payment, you do not need to worry about disposing of the item at the end of your agreement and VAT can be re-claimed on rentals.
Asset Refinancing is ideal for businesses that need to release capital from assets that they own such as vehicles, machinery or equipment in order to consolidate debts, ease cash flow or fund a new asset. The provider purchases the asset from the business then rents it back at an agreed repayment amount and over a specific term. Provided repayments have been met, at the end of the term, the business will own the asset. Asset refinancing allows a business to continue using the asset, without interruption and releases a cash injection which the business can use to its advantage.