THANKFULLY, THAT all-important milling machine or plant equipment isn’t as far out of reach as it may seem. With the correct asset finance solution for your needs, you could fund the hire or purchase and unlock untapped growth far exceeding the initial costs. 

Finance may be the better choice even when you could technically afford the machinery outright. Depleting your cash reserves too far could result in struggling to pay for operational costs, wages and stock. However, with finance, you can split the costs over monthly payments.

What is asset finance?

There are a few options to fund the upfront costs of expensive equipment without taking cash reserves intended for other purposes. The most likely solution will be a form of asset finance. With asset finance, the lender purchases the equipment and leases it back to the business. You lease the equipment at agreed (monthly) instalments. This enables you to access equipment for affordable monthly payments without tying up existing lines of credit.

Assets will typically fall into one of two categories; hard assets or soft assets. Hard assets are things which will retain a significant value by the end of the payment term. Vehicles and machinery will generally be considered hard assets. If something loses value over time, it will typically be classed as a soft asset. The interest rate a lender will charge will be influenced by the type of asset (and other factors such as your credit profile). 

What is hire purchase?

Hire purchase is a form of asset finance. Hire purchase offers the option to purchase the asset at the end of the payment term. It requires that the VAT be paid upfront, often alongside a more sizeable deposit than is required with other asset finance options. Hire purchase agreements can be structured with balloon payments – interest-only instalments followed by a one-off payment of the principle at the end of the term.

Hire purchase is worth considering if the equipment will continue to provide value after the payment term. However, you should consider additional costs such as storage, maintenance, and upgrades. With hire purchase, you may be able to claim some capital tax allowance. 

What is lease finance?

The second type of asset finance is lease finance. Lease finance typically requires a smaller deposit than the purchase and spreads VAT across the term. This makes the initial outlay lower. You can also offset lease finance payments against revenue for tax purposes. However, you cannot normally claim capital allowance. Lease finance is structured as a rental, meaning the asset is returned at the end of the term. 

Lease finance can be ideal for equipment that is only required for a limited time. If equipment will see little or no use after the payment term, it is often better to return it. The cost to purchase the asset and its continued upkeep and storage could be far more costly than the value it provides. 

What is equipment refinance

Finance options can be utilised not only for acquiring new equipment but also for freeing up capital from your existing equipment. With equipment refinance, you can sell equipment you own outright and lease it back. This frees up a lump sum and moves costs to monthly instalments. When put to good use, the freed-up capital can more than outweigh the monthly payments. Equipment refinance is available as hire purchase or lease finance. 

www.portmanassetfinance.co.uk