VEHICLE ASSET FINANCE – YOUR OPTIONS
How you can make the right fi nance option work for you
THE world of asset fi nance can be tricky and mind-numbingly confusing at times, so most people could do with a ‘near- jargon-free guide’ on vehicle asset fi nance.
Hire purchase? Lease fi nance? Sale and leaseback? What does it all mean, and which one is right for your business?
If you’re planning to purchase new vehicles, or want to refi nance your existing fl eet, you need to choose the option that meets your business needs.
Here, I have attempted to explain clearly (and with minimum jargon) what each fi nance agreement requires from you, and what you can expect in return from your asset fi nance provider.
Hire purchase
Probably the most straightforward agreement, Hire Purchase provides you with the option to own the asset outright at the end of the agreement. It is a widely used fi nance solution, that allows a company access and use property, and equipment without incurring large cash outfl ows at the start.
You pay an initial deposit to your chosen asset fi nance provider, followed by equal monthly instalments throughout the term of the agreement.
Once the last payment is made – together with a fi nal option to purchase fee – you own that asset entirely.
Key benefi ts of hire purchase include fi xed interest at the start of the agreement (which eases budgeting). Hiring means total control over that asset, and
depending on circumstances, VAT on the cost of the asset is reclaimable.
Other benefi ts include claiming tax benefi ts of ownership (subject to your tax status) - seasonal payment options are usually available, and the asset appears on your balance sheet.
Lease Finance
Similar to hire purchase, leasing is a simple method of fi nancing vehicles, and allows your business to purchase equipment without a big up-front cash outlay.
Lease fi nance is available in two forms - a Finance Lease, and an Operating Lease. In both cases leasers pay an ongoing rental fee for a fi xed period, and the fi nance provider retains ownership of the asset throughout the term of the agreement.
BY SPECIALIST FLEET SERVICES LTD VEHICLE FINANCE DIVISION SALES DIRECTOR, DALE TRENAM
The key diff erence is that with an operating lease, the payments are lower and you hand the asset back at the end of the agreement. With a fi nance lease at the end of the term of the agreement, you can enter into a secondary lease period with your fi nance provider at a ‘peppercorn’ rental.
A key benefi t to Lease Finance is it provides a fi xed interest rate throughout the agreement, which creates certainty of repayment. Other benefi ts include asset return at the end of the primary
term, with no further liability. VAT is not payable as part of your deposit, and rental agreements can off er tax benefi ts - which are structured to refl ect cash-fl ow.
Lease Finance also off ers fl exible repayment structures, providing immediate use for minimal outlay.
With an operating lease, the primary period is usually less than the full economic life of the asset. The asset still has a signifi cant value at the end of this period, and the leasing company fi xes a residual value for the asset at the outset of the agreement - which reduces your monthly payments.
An Operating Lease’s key benefi ts include protection from the risk of the asset losing value, while the asset can be an off -balance sheet - so you can off set payments against taxable profi ts (subject to imminent accountancy rule changes). VAT can usually be reclaimed on the asset.
Finally, Sale and Leaseback is an eff ective way to raise money to fi nance further business growth, by releasing capital through your asset fi nance provider, to purchase your existing vehicle assets and lease them back to you.
Put simply, you sell a vehicle to your fi nance provider in return for cash. A leasing agreement is then set up, allowing you to continue to use the vehicle asset in return for regular instalments.
A key benefi t of a Sale and Leaseback method includes no initial payment or deposit. It injects immediate cash into your business, there is a continued use of asset being fi nanced, and documentation is simple.
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DAF Skiploaders are a popular choice of vehicle that SFS provide via asset fi nance SHM March, 2018
www.scs.co.uk www.skiphiremagazine.co.uk
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