Essex Commercial Finance

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Drive Forward With Asset Finance

bulldozer on construction site

Recent years have seen steep growth in UK businesses using Asset Finance to acquire and use a wide range of assets; tens of billions of pounds are lent annually to SMEs by asset finance lenders to help them grow, meet demand and maximise opportunities.

Even before the Covid pandemic, and the critical need to ensure that a business conserves cash flow, there were many drivers for companies to use Asset Finance:

  • Spreads the cost of an asset over years rather than an up-front cash cost – frees up capital and cash flow to be deployed for other purposes
  • The addition of assets to a business when needed can help drive growth
  • Lease facilities can avoid the issues of depreciation of the asset, as the company won’t own the asset at the end of the agreement
  • Asset Finance removes the use of more traditional facilities such as business loans and overdrafts – which in turn reduce headroom in cash flow, and commonly take up a bigger piece of available security and guarantees for your business

Leasing Finance and Hire Purchase facilities are treated differently for tax purposes in your accounts, and it is worth having your accountant’s confirmation of which is more beneficial to you:

  • Lease payments appear on your Profit and Loss accounts as an expense
  • Hire Purchase is accounted for differently, counted as an asset as if already owned on your Balance Sheet, and so you account for its depreciation

Every Asset Finance lender will have their own criteria for assets that they will lend against (more than once I have heard “If it’s got wheels we’ll lend against it…”), but assets can broadly be split into Hard and Soft categories:

Hard Assets 

Generally higher value assets, and commonly retain their value for longer, such as:

  • Heavy goods vehicles, light goods vehicles, commercial vehicles and cars
  • Agricultural machinery
  • Construction machinery
  • Manufacturing machinery and plant
  • Recycling processing equipment
  • Printing presses

Soft Assets

Commonly very low residual value at the end of the facility, and usually Leased. For example:

  • IT (Hardware and Software)
  • Audio visual
  • Furniture, fixtures and fittings
  • Security systems
  • EPOS (Electronic Point Of Sale) card terminals

It makes sense that assets that retain their residual value can require lower initial deposits and less additional security to guarantee the Asset Finance agreement – and vice versa for those assets than can immediately lose a significant degree of their value as soon as they are purchased.

Used Assets

Lenders will finance the purchase of second-hand equipment (for example, used vehicles or refurbished IT hardware); they will independently identify the value they see for the asset, and may limit the term to an overall number of years in age of the asset.

There is a choice of Asset Finance facilities that can be selected on an asset by asset basis, ensuring that you have the most suitable facility for each asset by its specific requirements:

  • Leasing Finance: Your business doesn’t own the asset but agrees a lease usually for a fixed term and payments – you are in effect renting the asset
  • Hire Purchase (HP): This allows your company to purchase an asset over an agreed term with agreed regular payments – the asset is yours when all of the agreed payments have been made
  • Refinance: (or ‘Sale and Lease Back’) In simple terms, your company may own assets that are either unencumbered or partially financed – lenders will commonly lend up to 70% of their current value less any outstanding finance
  • Operating Lease: A specialised form of Leasing Finance where your company requires the asset for a specific term, and not for its working life – can allow your business to offset the cost of the lease against specific projects or income streams
  • Business Contract Hire (BCH): Exclusively used in the leasing of company vehicles, involves the sourcing, leasing and maintaining (contract option) of vehicles for your business for a pre-determined period

How does Leasing Finance work?

Lease the asset for your business for a fixed term, commonly up to a 7 year maximum, and you agree a fixed monthly lease payment at the outset for the term of the deal.

The lessee (your business) is responsible for the maintenance, insurance and upkeep of the asset for the term of the lease agreement. 

At the end of the lease term you hand back the asset to the Asset Finance lender, and subject to there being no material damage contra the lease agreement then you have nothing else to pay.

Businesses lease their assets as a way to do their business – to meet client orders in manufacturing and delivering goods for example. So, while the company won’t own the asset at the end of the contract – it will have paid for itself over the term by the business that it facilitates for you.

A lease allows you to budget for the term that you have the asset, and not be concerned by the depreciation or falls in the resale value when the contract ends. 

How does Hire Purchase (HP) differ to Leasing Finance? 

In a nutshell, with Hire Purchase you are spreading the cost of owning a new asset over an agreed term, but at the end you have an additional option to purchase the asset – something that you cannot do at the end of a lease.

With Hire Purchase your contract can include a final residual or ‘balloon’ payment at the end of its term, a price at which you can then buy the asset outright.

A company can plan to use the asset longer than the finance term – so by agreeing the residual or ‘balloon’ payment at the outset they know from the start what the total cost of owning it will be.

On a Hire Purchase agreement, a company pays the VAT up front on the cost of the asset – which can be fully claimed back if eligible under normal VAT rules. (See for relevant links)

A residual or ‘balloon’ payment is an option – the company can hand the asset back at the end of the agreed payment term without depreciation risk – it is not a compulsory purchase at that point!

The ‘One Stop Shop’ of Business Contract Hire to Lease your company’s vehicles

Whether you are looking for a single car or van, or an entire fleet, our vehicle leasing partners can source, finance and add in Maintenance and Insurance product options so that you really do only have to go to one source for your requirements.

Commonly the leasing company will achieve a better up-front price for the vehicle than your company could through their supplier network, and this improves the terms of the lease for your business.

  • Lease the vehicle for your business for a fixed term, commonly between 2 – 5 years
  • Agree a fixed monthly lease payment at the outset for the term of the deal
  • Set the annual contractual mileage when you take out the lease
  • A common optional extra is a maintenance contract over the same term, where for a fixed monthly cost servicing, replacement tyres, maintenance and repair costs can be budgeted for at the outset
  • At the end of the lease term, you hand back the vehicle, and subject to there being no excess mileage or outstanding damage to the car then you have nothing else to pay

CBILS Asset Finance – Available for applications until March 31st, 2021:

Up to £5m over a maximum term of 6 years – New Asset Finance deals and Asset Re-Finance, with the possibility of a term loan alongside the Asset Finance if this is necessary to support the business

Asset Finance conserves cash in your business, allows you to budget for the months and years ahead, gives you the potential to grow and could drive you forward out of this pandemic period.

Why not get in touch today to discuss the most suitable Asset Finance solution for your requirements?

Mark. / 07726 195 106

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Essex Commercial Finance Limited  is a company registered in England and Wales with Company number 12610135
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