There are many reasons why companies invest in new equipment – from replacing tired old existing kit to ordering new equipment to facilitate growth.
How to pay for this investment is the real issue.
When buying equipment businesses are often faced with cash flow challenges as finding a lump sum is not always easy. In such cases asset finance can provide a quick and realistic alternative by securing funding against this new asset.
It is not always right or necessary to pay all costs upfront as a Finance Lease or Lease Purchase can provide a more affordable answer, in line with the lifespan of the equipment.
It’s always a good idea to conduct a Cost Benefit Analysis before you invest in the equipment – this can help you identify the breakeven point (the point when the kit has ‘paid for itself’) which can be particularly useful in the manufacturing or engineering sectors.
This can also help in determining the length of the repayment term when you finance the equipment. A 5 year asset finance agreement might not be ideal for an item of kit that has paid for itself in a couple of years.
If the item is particularly high value or a market that needs testing for a business, leasing can provide a good solution. There are two principal types, a finance or full pay-out lease or a residual value lease.
A finance lease offers a rental structure, that incorporates interest, but allows the lessor to return or replace the product at the end of the agreement.
A residual value lease effectively allows for regular payments that either pay for the item by the end of the contract or allow for a final ‘balloon payment’ to be made at the end with the company effectively buying the product at the end of the agreement.
Step leases are also an effective way of matching payments for equipment with income that the equipment may generate.
They work in a simple way in which the repayments are tailored to the business’ needs, for example if a new machine will take a few months to generate the required sales, it would make more sense if repayments could be scaled up as the equipment brings returns to the business.
We can even address seasonal repayment schemes for asset finance, with structured higher/lower capital and interest repayments suited to your spikes in seasonal sales.
Asset Finance fundamentally offers the business the opportunity to invest in new equipment without having to suffer the disadvantages to cashflow that an outright purchase will incur.
The types of asset that can be financed are too many to list! Most funders break them down into two types, Hard and Soft Assets.
This banding incorporates items of equipment that can range from plant and machinery to telecommunications to fixtures and fittings.
Soft Asset finance has seen real growth recently, with many of our top-tier panel funders happy to consider IT and communications equipment, shop fittings, office items, software and security (we have recently arranged £80,000 for CCTV towers for a new SME client) – most are even prepared to include the installation and additional intangible costs of the purchased item (up to a certain percentage of the overall cost).
Whatever is the right scheme for your business, at PFC we offer a quick, simple and effective route to finance.
With a team of experts to talk you through the varying tax and VAT implications associated with Finance Lease and Lease Purchase (Hire Purchase) and a panel of more than 50 lenders we can be sure to find the right route to finance and so that our client companies have the right finance to secure their futures.
For more information contact a member of our friendly team on 01829 738 799 and let us find the right route to finance.