What's Your Pick From The Asset Finance Menu?
In recent years there has been a surge in the amount of businesses acquiring assets through finance. Purchasing high-value assets outright isn’t always the most financially feasible option for your business.
Asset Finance is an integral lifeline for businesses within a range of different sectors as it reduces upfront costs, supports cash flow and protects against depreciation. Another advantage is that each finance plan is carefully crafted to your requirements. You have the flexibility to decide whether you would like to rent the equipment with the intent of owning at the end, or to lease it with the view of returning the asset. Furthermore, you are able to dictate how much you want to pay upfront and how long you wish to make payments for-making every experience with finance bespoke and perfectly suited to your business.
You may be wondering what can be financed.
Any substantial purchase can be financed.
What does that mean?
Brokers like ourselves do not limit what we can finance, we have financed everything from Ferraris to cows. Assets are often categorised by lenders into one of two categories. Hard Assets and Soft Assets. Hard Assets are often more favourable to lenders as they offer a level of security. This is because the asset itself holds a level of value even after they have reached the end of their useable life, an example would be a Digger. Soft Assets can still be financed but they are more of a risk to lenders. This may mean that on occasions lenders will reject funding because they are of little or no value at the end of their life. Soft Assets include equipment such as security systems.
There are a multitude of finance options you can select on your route to finance. Sometimes it is hard to know which one would work best for your business. So, to make it easier for you, Chatsbrook have summed up each finance plan.
Businesses agree to hire an asset from a finance provider, who agrees to purchase and provide the asset to the business if the business meets all of the criteria. Businesses are then accountable for the insurance and maintenance of the equipment and make regular payments to the provider. At the end of the agreed term-time businesses have the option to take ownership of the asset.
This agreement is very similar to Hire Purchase but offers more flexibility to the business. Lease Purchases enable you to defer a proportion of your payments-this is known as the final balloon payment. Businesses that choose to defer a larger proportion of the payment consequently have lower monthly payments.
Operating Leases are particularly beneficial to businesses that require High-value, specialised assets for a short term which is transacted as an off-balance sheet form of funding. This is because the rental cost is based on the value of the asset over the period you have agreed the lease for, not the full value of the asset. VAT can also be reclaimed if VAT registered. This plan also accounts for the maintenance and upkeep of the asset.
This is a contract between the business and the lender, whereby the business agrees to lease the asset for a particular amount of time whilst maintaining regular payments. Throughout the lease, the business is wholly responsible for the maintenance of the equipment. At the end of the leasing period, the provider sells the asset and typically receives only 5% of what it sells for. On average, 95% of the money generated from the sale is returned to the business that leased the asset.
A Contract Hire agreement is great for businesses that wish to have a business vehicle, such as a car or van where usage rather than ownership is required. There are many benefits to this type of agreement. For instance, you do not have the burden of having to source the vehicle from the supplier, there is no risk of depreciation or disposal and there is also an option to include the running costs of assets. There are however mileage limits.
Businesses can agree to sell one or more of their assets to the finance provider, releasing a sum of money- this is good for businesses that are asset rich and wish to release cash flow. The business retains full use of their asset as they lease it from the finance provider by providing regular payments. Refinance is also good for businesses with poor credit history as the finance arrangement is based on the value of the asset and not the businesses credit history. This means that businesses that have been turned down by lending institutions in the past for loans could have the opportunity to access funds.
This type of finance agreement makes it possible for businesses that experience seasonal trading periods to tailor finance plans according to their business’s cash flow. For example, Farmers benefit from this arrangement, as they are able to make larger payments during busier trading periods and smaller/no payments during quieter periods. Another advantage is that the asset appears on business balance sheet and can be wrote down against the business’s taxable profits. Furthermore, after all of the payments have been made the business has full ownership of the asset. One slight drawback is that no policy amendments can be made throughout the policy duration.
At Chatsbrook, we provide a transparent service that is dedicated to achieving the most suitable deal for your business, so that you can go on to achieve optimum growth.
If you think that any of these finance options could benefit your business, please do not hesitate to get in touch with our friendly team. You can contact us on 01603 733500 or info@chatsbrook.co.uk
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