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Ideal Finance Solutions - Features

Asset Finance - Facts

Asset Finance is a simple & flexible way of funding the purchase of new business equipment without tying up precious capital. Refinancing existing business assets releases equity for virtually any purpose including clearing business debts, VAT & PAYE, overdrafts and loans and injecting cash for expansion/additional working capital.

  • Most types of business asset can be funded for periods between six months and seven years for amounts ranging from £5000 to £100 million.
  • Leasing agreements give you access to assets or equipment owned by the finance company for a specific period of time in return for agreed regular payments.
  • There are a number of different types of lease but essentially, all are either;

  1. Direct Lease. You negotiate the purchase of an asset from a manufacturer, distributor or existing owner and arrange for the leasing company to buy it and rent it back to you.
  2. Sale & leaseback. The equipment or asset you already own is sold to a finance company which then rents it back to you.

Although there are numerous variations, there are three major types of asset finance: Hire Purchase, the Finance Lease and the Operating Lease.

Hire Purchase

  • Not a lease as such but an agreement to hire an asset with legal title passing to you when all agreed payments have been made.
  • The payment / funding profile can be structured to suit cash flow.
  • You are able to claim capital allowances, reclaim VAT and offset interest payments and taxable allowances.

Finance Lease

  • The finance company takes legal ownership of the equipment and leases it back to you, giving you immediate use for a small capital outlay.
  • Payments can be structured to suit cash flow.
  • The finance company claims the benefit of any capital allowances and reflects this in the rentals charged.
  • Payments are subject to VAT, which is reclaimable on a monthly basis. Rentals paid within the tax year can be offset against taxable profits.
  • At the end of the lease the asset is usually sold and hence legal ownership does not pass to you. It is however sometimes possible to extend the lease at minimal cost or to buy the equipment outright for a nominal transfer fee.

Operating Lease

  • Tends to be shorter term than a Finance Lease with the finance company building in a residual value in the expectation it will sell the asset at the end of the term.
  • The built in residual reduces the amount to be financed which in turn reduces the monthly rentals.
  • The finance company takes the residual value risk and, equally, any profit made when the asset is sold. There may be an opportunity to negotiate an extension to the leasing period, once the original contract has expired.
  • Can be off-balance sheet

Hire Purchase and the different types of leasing each have a specific impact on the cash flow, accounting and tax arrangements of a business and taking expert advice is essential. Our panel of lenders will help guide you in the right direction and you should always speak with your accountant and/or tax advisers before entering into a long term financial commitment.