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What is Asset Finance?
A lending facility where the primary security consideration rests in the relationship between the level of funding and the perceived realisable value of the financed asset.
Why use Asset Finance?
Commercial asset finance products are designed to support investment in, and the expansion of your business. Structured funding can help retain cash in the business and assist your cash-flow. You can offset your finance repayments against income generated to offer simple budgeting solutions.
The repayments may be spread over the ‘useful working life’ of the asset. Assets become ‘self funding’ when you structure the repayments against the income generated by the working asset.
Asset Finance v Cash/ or Overdraft
Asset Finance offers several benefits from using your bank overdraft or cash. Asset finance facilities are not ‘recallable on demand’ and unlike your overdraft, the interest rate can be fixed at the outset. Using Asset Finance will preserve your cash and bank facilities for daily working capital.
Borrowing from a variety of lenders reduces the risks associated with relying on a single source and enhances your credit status.
Hire Purchase (often called Lease Purchase) maybe appropriate where you wish to purchase an asset you want to keep beyond the finance contract. Hire Purchase enables you to acquire assets immediately by paying an agreed deposit and spreading the remaining balance over a fixed term. Repayments are agreed at the outset for ease of budgeting. There is usually no need for additional security as the finance is secured against the asset. Title passes to you on satisfactory completion of the terms of the contract, usually requiring payment of a nominal ‘option to purchase’ fee. Interest can be offset against your profits throughout the term of the agreement. As owner, you can claim Capital Allowances against your profits during the useful working life of the asset.
Leasing is appropriate for VAT registered customers who have no desire to own the asset. Leasing allows you to obtain use of the assets whilst paying a rental for a fixed period. With Leasing, the Lender is the Owner and can therefore claim back the VAT and also claim the Capital Allowances. The Lessee (customer) claims back the VAT paid on each rental and can also offset the rentals against taxable profits. At the end of the Primary Period you have 3 choices: