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Asset Finance

  1. 1 Introduction
  2. This is a mechanism which allows SME’s to source funding from their current and fixed assets.
  1. 1.1 Types of assets which are capable of being financed include:-
      1. Plant and machinery
      2. Engineering equipment
      3. Printer/copier equipment
      4. Cars
      5. Commercial vehicles (HGV’s, LCV’s and vans)
      6. CCTV equipment
      7. Website development
      8. Partitioning/mezzanine flooring
      9. Lifts
      10. Racking
  2. 1.3 Newly incorporated businesses often find difficulty in obtaining finance. This is not always the case and provided that the company has a proper business plan and sound internal controls and systems, funding can be sourced.
  3. 1.4 We have access to a number of finance providers who will operate in a variety of markets however specialised.
  4. 1.5 Often it is possible to raise the requisite funds by spreading the facility over a number of lenders.
  5. 1.6 In general terms paying cash outright for capital assets represents a significant drain on a company’s resources. Asset finance eases this problem by means of regular monthly and affordable payments.
  6. 1.7 Leasing and hire purchase (often referred to as lease purchase) are convenient forms of providing short and medium term finance where the business requires the use of equipment without an immediate substantial outlay.
  7. 1.8 These types of agreement are easy to arrange and therefore also fairly quick. The commitment however is relatively inflexible and there are penalties for early closure.
  8. 1.9 Funding ranges typically from a minimum of £10,000.
  9. 1.10 Benefits
      1. Capital expenditure is financed from revenue
      2. Finance rates are often as competitive or better than traditional bank loan rates
      3. The company retains full use of the asset with no upfront payment
      4. On certain types of funding fixed interest rates are available which removes uncertainty and makes budgeting simpler
      5. The finance is not repayable on demand unless there is a default
      6. The most up-to-date products and technology can be acquired
      7. No additional security is required
  1. 2 Hire Purchase
  1. 2.1 An initial deposit is required with the balance and interest payable over a fixed period of time.
  2. 2.2 The asset can be operated exactly as though it belonged to the lessee who takes responsibility for maintenance, repairs and insurance.
  3. 2.3 Throughout the period of the contract the asset does not legally belong to the lessee.
  4. 2.4 The asset becomes the property of the business at the end of the contract.
  1. 3 Fanance Leases
  1. 3.1 The rentals cover at least 90% of the cost of the asset.
  2. 3.2 Ownership remains with the rental company whereas the lessee retains control provided payments are kept up to date.
  1. 4 Operating Leases
  1. 4.1 The lease does not cover the full life of the asset and the instalments will not constitute substantially all of the value of the asset.
  2. 4.2 Most operating leases are known as contract hire agreements and are usually for items such as vehicles.
  3. 4.3 Broadly speaking an operating lease is simply a rental contract for a specified period and hence ownership remains with the lessor.
  4. 4.4 Operating leases are not recorded as assets in the business’s accounts. The rental payments are charged directly to the profit and loss account in the year in which they are incurred.
  1. 4 Sale and Leaseback
  1. 4.1 This option involves the sale of an asset which can include property or vehicles to a finance house with an agreement to lease it back.
  2. 4.2 The benefit of an immediate cash inflow may be substantial but the company loses ownership of a valuable asset and a potential source of security.