What is Asset Finance and why use it?
This family of ‘core’ lending facilities is an ideal financing tool for businesses which acquire working assets because the primary security consideration for a lender rests in the relationship between the level of funding and the perceived realisable value of the financed asset. This usually means that the subject asset can be financed ‘stand-alone’, without the need for additional security.
Why use Asset Finance?
- Commercial asset finance products are designed to support investment in, and expansion of your business.
- Profiled funding through B2B Cashflow Solutions can help you to retain cash in the business and assist your ‘cash cycle’.
- Our experience enables us to offset your finance repayments against income generated to offer simple budgeting solutions.
- So whichever rental or purchase finance products you choose, the repayments may be spread over the ‘useful working life’ of the asset.
- Therefore by structuring the finance repayments against the income your asset acquisitions can generate within your business, your key ‘working’ assets can become ‘self funding’
Asset Finance v Cash/Overdraft
- Asset finance also offers several benefits when utilised in preference to your bank overdraft or ‘cash in hand’.
- Asset finance facilities are not ‘recallable on demand’, and unlike your bank overdraft the interest payments can be fixed at the outset.
- ‘Risking’ someone else’s money often makes sense, but most businesses have only nominal ‘cash’ reserves, and limited core security to offer against bank facilities including overdrafts and commercial bank loans.
- By using asset finance, usually only secured against the specific asset, your ‘cash’ and bank facilities can be preserved for daily working capital, or a 'rainy day'.
- At the same time, borrowing from a variety of lenders reduces the risk associated with relying on a single funding source, and enhances your credit status.
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Hire Purchase / Lease Purchase
- Hire purchase (or Lease Purchase as it is often known) enables assets to be acquired immediately by paying a mutually agreed deposit and spreading the balance of the cost over a pre-agreed period.
- Because Hire Purchase and Lease Purchase products give ownership to the borrower at the end of the contract, they may therefore be appropriate where a business wants to purchase an asset which it needs to retain in the business beyond the finance contract.
- Repayments can be priced and structured at the outset for ease of budgeting.
- Any applicable invoice VAT would normally be payable on the purchase of the asset (note new and some used cars may not apply), and reclaimed in part or whole as appropriate.
- There is usually no need for additional security as the finance is secured against the asset.
- Title passes to to the business on satisfactory completion of the terms of the contract, usually requiring payment of a nominal fee at the end.
- In the meantime, the interest element of the finance installments can be offset against the business Profit & Loss account throughout the term of the agreement
- And the business can claim Capital Allowances against taxable profits as ‘owner’ during the useful working life of the asset.
Fixed and variable rate options are available.
Lease Hire / Finance Leasing
- Generally appropriate for VAT registered businesses which have no desire for ownership
- These products enable you to acquire use of assets while paying agreed rentals (+ VAT) over the period of the contract.
- There is usually no need for additional security as the leasing company retains ownership of the asset.
- This differs from ‘ownership’ facilities in so much that the lender (‘Lessor’) pays VAT on the purchase price and claims the Capital Allowances as owner.
- The business renting the asset (‘Lessee’) offsets the net VAT rentals against taxable profits (restrictions may apply on cars), and reclaims part or all the VAT element of the rentals as appropriate.
- At maturity of the ‘primary’ contract period a lease offers the option to carry on hiring the asset under the terms of a secondary ('peppercorn’) rental period for a nominal sum.
- Or the asset can be sold by the Lessee on behalf of the finance company and retain an agreed percentage of the net VAT sale proceeds.