Explanation of Asset Finance

Advantages of Asset Finance

1. You will be able to buy a new piece of equipment or machinery that you may not otherwise be able to afford and you can upgrade to the latest equipment more often.
2. The income generated by your new purchase can be much greater than its monthly cost.
3. The agreement cannot be cancelled by the lender, providing you make the payments.
4. The smaller and regular payments will allow you to manage cash flow better enabling you to react and adapt to changing market conditions.
5. It is easy to arrange and the term for asset finance is generally matched to the useful life of your purchase so that you are not left paying for something which is out of date.
6. Payments are generally fixed over a fixed term so you can budget for the future.

Common Asset Finance

Hire Purchase (HP)

Hire Purchase is a commonly used way of financing for companies who ultimately wish to gain ownership of the assets. The finance company does purchase the asset from the vendor and then effectively hires it to you until the last payment is made at which point ownership is transferred to you, the customer.

Advantages of Hire Purchase

1. You will not always require any additional security as the asset finance is secured on the asset.
2. Once the last payment is made you gain ownership of the asset which means that any resale value that it has belongs to you and no one else.
3. The loan term, interest rate and payments are fixed unlike some bank facilities.
4. Any depreciation or write down allowance of the asset can be offset against tax.

Leasing

Under this type of agreement the finance company will purchase the asset and the customer then hires the use of it for a fixed period which will normally be considered as the useful life of the asset. When this ends the customer generally has a choice of simply returning it, extending the rental or buying it outright. Sometimes there is an option to continue renting it for a reduced payment or “peppercorn rental”.

Advantages of Leasing

1. You can offset the rentals against tax and reclaim the VAT if applicable.
2. Initial rentals are generally smaller than deposits required on HP agreements.
3. Some agreements can offer maintenance and servicing packages included in the payments.
4. You can keep up to date with the latest vehicles and equipment for an initial low outlay.

Further Asset Finance Advice

There is no one best way for you to finance your purchases and you should always seek professional advice from your accountant as to which is the most beneficial way for your business to fund its vehicles and assets.