Asset Finance & Leasing
Asset Finance or Leasing
SMEs may require short-term funding like a bank loan to purchase a capital item, but there are other forms of finance available to help across the medium-term. In return for regular payments, this funding will allow you to run an asset over a certain period of time. And you won't be restricted on equipment either, because in many cases you choose the exact item and the finance company buys it on your behalf. It's suitable for almost all sectors of the UK economy, all business sizes, and all legal status', so why not call us now to find out more information on whether you need Asset Finance or Leasing?, you see BWG is a commercial leasing and finance broker that really understands it's customers needs.
The Types of Asset or Lease Finance
HP agreements will see you pay a regular sum of money for the use of an agreed piece of equipment, and at the end of the term you will either own it outright, or will be asked to pay a final settlement figure. From a tax perspective, you'll be treated as the owner from the first day, so will be able to claim capital allowances, although on the negative side you will usually be responsible for the maintenance of the item.
There are various types of leasing finance, but with all of them ownership will never pass to you. This means that the leasing company will claim all capital allowances, although they will pass on the benefit to you through reduced charges, and you can usually deduct the full cost of the lease from taxable income as a business expenditure. One point worth noting though, is that you'll usually be responsible for maintenance.
Computer Leasing - Equipment Leasing - Vehicle Leasing
Finance leasing is the closest to HP, often referred to as a 'full payout lease', and sees the leasing company charge you the full cost of the equipment, plus charges over the period of lease. You won't own the equipment, although you will be responsible for it and its maintenance, and must also show it on your balance sheet as a capital item. At the end of the lease, the company will usually offer you a secondary lease period at significantly reduced rates or, if you don't want it, you can arrange to sell the item second-hand to someone else and take most of the sale proceeds.
If you need equipment for a shorter time then operating leasing could be the answer. The company leases you the equipment, expecting to sell it second-hand at the end of the agreement, or to lease it again to someone else, which means that it doesn't need to recover the full cost from you. This type of agreement is common for equipment which has a well-established second-hand market such as cars and construction items. The term is usually two to three years, but could be much longer if you wished, although it's always less than the working life of the machine. One advantage of this type of finance is that there is no need for you to enter it on your balance sheet as a capital item.
Contract hire is a form of operating lease which is often used for vehicles, but which sees the leasing company take on some of the maintenance and management such as servicing, replacement of parts, roadside assistance, and the like.
Sales aid leasing is when there is a disclosed relationship between the leasing company and the manufacturer or supplier of the equipment itself, and can see additional facilities such as maintenance built-in. The leasing itself is done through the supplier of the equipment, and the leasing company will only get involved when it confirms acceptance of the leasing terms.
The Benefits and Disadvantages of Leasing
Most equipment used widely in businesses or industry can be bought with asset or lease finance, with values from just a few hundred pounds to £100 million! Commonly leased items include plant and machinery, computers and software, medical and dental equipment, agricultural equipment and office equipment – although there are many others too.
This form of finance can be extremely beneficial but it isn't suitable for everyone. Review our brief overview below, and if you have any queries call a member of our asset and lease finance team for a no-obligation discussion.
- Once entered into, the agreement can't be withdrawn from as long as payments are made, so whilst you can be sure of having the equipment, you may not be able to stop early
- Regular payments help with budgeting and you can assess the cost versus added revenue and profits generated through its use – all of which helps forecast cash flow
- They are mostly fixed rate so you always know what the agreement is
- The finance company retains legal ownership of the equipment until the end of the agreement so they have more security and may be able to offer better terms. It can also help those businesses with poorer credit ratings
- Finance can be provided for the entire cost of the equipment, although some forms of asset or lease finance such as HP may require a deposit, but you can sometimes 'trade in' your existing assets
- SME s can extend the range of facilities available by using a mix of finance options
- It can mean that you can take advantage of capital allowances: if profitable, you can claim your own capital allowances back through HP or outright purchase, and if you're not paying tax or corporation tax at small companies rate then leasing could be a better option for you.
Talk to BWG About Your Leasing Requirements
There is 100% tax relief on equipment such as printing, computer and telephone systems, production lines, and the like, and although you could buy instead, there are a number of financial disadvantages – not least that the items will have to be listed on your balance sheet and you run the risk of depreciation. At BWG, we can't prescribe a suitable funding strategy for you without knowing more about your company, so why not call us now to talk through your options?
