Asset Purchase

Asset Finance

Purchasing new assets for a business is an essential part of growth, however sometimes cash flow can hold back the business from expanding as quickly as you would like.

Outlaying large upfront payments for new equipment or machinery can affect the day-to-day cash flow in the business but failing to invest could see your customer base begin to suffer. Asset finance as a form of funding is specifically designed to help businesses in this scenario.

Lenders are either able to purchase the asset on behalf of the business, allowing you to spread the cost of buying it into affordable monthly repayments, or they can simply lease the equipment to your business for as long as it is needed.

Common Forms of Asset Finance available:

Finance Lease

A finance lease works in a similar way to renting any equipment that is needed. The asset is typically leased for its useful life. This means that it is not owned at the end of the agreement but gives flexibility and means that your business will not be left with outdated equipment.

Operating Lease

An alternative to a finance lease is an operating lease. This is where the lender will effectively rent the machinery or equipment to your business.

The difference is that the rental is calculated not on the total cost of the equipment but on the difference between the initial cost and the estimated residual value of it at the end of the rental period. This can be a helpful way to enable the use of more expensive pieces of equipment for businesses where rentals based on the full value could make the cost prohibitive.

As with a finance lease, at the end of the agreement the equipment is either returned, sold to a third party by the lender or a new lease agreement is entered into.

Contract Hire

Contract hire is a form of operating lease and is most commonly used to access new vehicles. Payments are calculated based on the difference between the purchase value and the estimated residual value of the vehicle at the end of the agreement. This helps to keep payments lower and, as with operating leases, generally can enable a more expensive vehicle to be acquired.

Hirers do need to be mindful of the terms that will surround a contract hire agreement however, particularly penalties that relate to excess mileage as this can add additional costs to the agreement upon its conclusion.

Hire Purchase

Should you as a business owner prefer to own the asset at the end of the agreement, then a hire purchase facility may suit your circumstances better. Payments are similar to a finance lease and are based on repaying the full cost of the asset but at the end of the agreement - subject to an additional option to purchase fee - ownership will revert to you.