Asset & Equipment Finance UK
Asset financing is a form of lending that allows you to use the assets you want to buy, or own, as collateral. Essentially Asset Finance allows you to buy assets such as equipment, machinery, cars, trucks or fixtures, and fittings – for minimal risk or it can allow your company to release cash from assets that the company may already own.
An ‘asset’ can be practically anything that creates revenue for your business. It can be an oven, bar fridges, fixtures, and fittings, or even a fleet of trucks for a haulage company. With so much choice, it is important that we get you in front of the right lender for your industry and situation. Get in touch today and let us help you find your right match.
Examples of Asset Finance
Asset finance can include:
- Buying Assets
- Refinancing Assets
- Hire Purchase Agreements
- Equipment Leasing
- Finance Leases
- Capital Leases
- Operating Leases
- Contract Hire
Buying Assets Example:
A good example, you own a haulage company and would like to buy another truck to expand your fleet. Instead of accessing a £200,000 loan with a PG for the truck, you could borrow a £20,000 for the 10% deposit and get Truck Asset Finance to pay the truck off to a finance company monthly. At the end of the payments, you will own the truck. Furthermore, you may not even have to put a PG on asset finance, making it potentially less risky for the directors.
Refinancing Assets Example:
Let’s say your company would like to expand into a new market and you need to build a new factory, with new equipment. If you own your old equipment outright, you can refinance these to release cash, to pay the deposit to then asset finance a new set of equipment for your new factory. This way there is less risk to the company and you have unlocked the funding you need to spread into a new market.
Asset finance to get new assets and equipment
It can be expensive to pay cash upfront for brand new equipment or machinery. It could be a risky move that creates cash flow problems in the future, especially if the return of investment on the asset won’t be seen for years.
Hire Purchasing is an easy way of buying an asset and spreading the costs over time. You pay in installments, which means the item appears on your balance sheet and you will be responsible for maintenance and insurance costs because you own the asset — but you will also have full ownership of the item after the term ends. The most common example of hiring purchasing is the car industry. When you Hire Hire Purchase a car, you own the car but are paying the car off over so many years every month. If something goes wrong with the car, you are responsible and still need to pay it off.
Equipment Leasing is when the lender buys the asset for you on your behalf, which they then lease back to you. The advantage of doing it this way is that you get it immediately and only need a fraction of the cost to get started. Different to Hire Purchasing, you can normally pay the VAT over the whole loan period instead of the upfront and normally they just require one month’s rent to get started. At the end of the lease, you can either buy the asset at a reduced cost, give it back to the lender or continue leasing the item.
Another advantage of leasing is that the company has the freedom to upgrade the asset as they grow over time, while still technically retaining ownership.
Finance leases and capital leases
A finance lease, or capital lease, falls between a hire purchase agreement and equipment leasing. They are longer-term leases designed to cover most of the asset's life. They are normally used for big-ticket items.
Businesses prefer Finance Leasing as they can write the costs off as a loss to the business, reducing a companies Corporation Tax Bill and increasing a potential VAT return. The asset is never owned by the business and is always owned by the finance company. It is essentially renting with a long lease.
Operating leases and contract hire
A more common type of equipment leasing is operating leases, or contract hires. The operating lease is essentially a rental agreement with a set term, and the lease provider (or ' lessor ') will usually manage the maintenance of the asset. Unlike finance leases, the balance sheet will not show an operating lease, which may bring positive tax benefits. Operating Leases can sometimes be cheaper, as you don’t ever pay for the full value of the item, however, you also don’t ever own the item either.