Asset finance

Asset finance can be used to purchase or refinance a business asset. Security is primarily taken on the asset concerned and is generally a stand-alone facility.

The cost is spread over a period up to the useful life of the asset. Assets that can be funded are generally of a tangible nature with a readily available resale market. The benefits of asset finance are that the cost of the asset can be linked to the income it generates, it is relatively easy to arrange, the repayments can be built into cashflow management, it is a stand-alone facility leaving income available for working capital and, unlike an overdraft facility, asset finance is generally non-cancellable providing the agreement is maintained correctly.

There are various types of asset finance and these include :-

Hire Purchase
This is a simple repayment facility where the asset is owned at the end of the agreement. Interest charges can be based either on a fixed or variable rate. Repayments can be structured in a flexible way using initial payments to suit individual cash flow requirements and a residual (balloon) payment can be introduced to lower the monthly finance repayment.

Finance Lease
This is different from Hire Purchase in that ownership never passes to the named customer / hirer in the finance agreement. The finance company effectively owns the asset, which is then rented to the client over a predetermined period of time. At the end of the agreed finance period the customer has the option to either retain the use of the asset by paying a ‘Secondary Period Rental’, sell the goods to a third party (on behalf of the finance company) or return the asset(s) to the finance company.

Contract Hire & Contract Purchase
Contract hire provides a solution where the lessor takes care of the management of the vehicle/s. Contract Purchase is a solution for companies who want to own their vehicles but want to avoid the risk of depreciating assets.

Operating Lease
This is effective for specialised assets and vehicles of higher value. The Lessor builds in a residual value to reduce the rentals, thus helping cash flow and making 'off-balance sheet' funding possible.