Asset based loans are becoming increasingly more popular with both small businesses and larger companies and in the second half of 2008 alone asset based lending agreements worth £1.5bn were out in place.  According to surveys of accountants in the UK they report that over 50% of their clients were now actively considering these forms of asset financing versus very low percentages in the past due to the general tightening of credit availability in the UK in the last couple of years.

Asset based lending takes a traditional invoice finance facility which you would probably more usually recognise as invoice discounting or factoring which is secured on debtors only, and extends this to allow companies to borrow against all of their other qualifying business assets and equipment.

Investing in plant, machinery and other equipment is essential for most companies in order to compete effectively in the marketplace and grow revenues and profitability.  However this can prove a drain on your cash reserves so it is worth considering asset based lending in one form or another to meet your ongoing funding requirements.  When assessing asset based lending the finance providers consider two crucial factors, namely the useful working life of the fixed asset and an external valuation of the asset.

Over the years our brokers have worked with all sorts of businesses, both large and small, so we can offer you advice as to which financing option suits your specific business requirement. We also take into account your budgetary and capital constraints when sourcing the appropriate asset finance for your situation.

Commercial equipment finance involves negotiating the warranty’s terms, the price, and the installation of the equipment. You can also lease the equipment for a fixed amount of time and then have the choice of returning the equipment or you can buy it for its residual value. Relevant factors to take into account include whether the equipment is likely to depreciate rapidly or even appreciate over the lifetime of the lease. You also need to consider the actual useful lifespan of the equipment as many items of commercial equipment can be used well beyond the lease term, whereas equipment like computers or computer controlled machinery generally become obsolete fairly quickly.

Our brokers are experienced when it comes to commercial equipment leasing so request a quote now.

Some examples where asset refinancing has helped businesses are provided below:

A print production company was asset rich but was experiencing cash flow problems in the volatile business environment at the time. The broker helped the company use asset refinance to release hundreds of thousands of pounds of cash which made a huge difference to the working capital available to the business.

A transport business had won a new contract which meant that it needed additional vehicles. Asset refinance was used in the form of a sale and lease back agreement to refinance the existing fleet of coaches and release the cash required for the deposits on the additional vehicles.

An engineering business owned most of its existing assets but its existing bankers were not prepared to extend the existing funding to the business via additional loans or overdraft facilities. Asset refinance was used to release cash for the purchase of additional production machinery.  The decision to refinance plant and machinery proved to be a flexible solution for the business which maximised the value already present in the existing assets.

Our brokers are regularly asked to help businesses when they need to refinance existing assets.  Contact us for a quote when you need equipment funding.

How does lease refinancing work?

In a simplistic scenario to perform a lease refinance you need to be in a position where the asset being refinanced is ‘unencumbured’. This is a legal term which essentially means that no other entity has a charge or claim over the asset in question, which normally is the position when the asset is owned outright by the business. Clearly this would not be the case as you are only part way through the existing lease and the existing finance provider will have some form of security over the asset, so a mechanism is required for the existing lease to be cleared as show below.

If an asset is already subject to a lease then the process to perform a lease refinance is for the new finance company to undertake a valuation of the asset and put forward a quote with a new payment schedule, assuming that they settle the existing lease and immediately refinance the lease without the asset leaving your business.

Our brokers have good contacts with finance providers who are willing to consider lease refinancing. Request a quote and we will determine the best equipment leasing solution for you.

This is where our asset finance brokers play an invaluable role as they have the experience, contacts and knowledge to quickly understand what your requirements are and what can practically be financed. It is important to appreciate that even though there are a lot of finance providers on the market their own products may actually not be appropriate to your unique needs. An asset finance broker will scan the market and use their experience to identify which financial product will best deliver what you need and, just as importantly, within your budgetary and financial constraints.

Our experienced asset finance brokers also bring another significant dimension into the equation – they understand what is financeable and at what rate. It is no use spending many hours preparing proposals which are then put to the finance provider only for them to be rejected. By the same token you do not want to find that the finance provider comes back with a proposed payment structure that is just not workable for you.

Speak to our asset finance brokers and they will make the process straightforward for you, saving you time and letting you focus on running your business rather than raising finance.

In fact the list of plant that can be financed is endless as long as it meets the normal plant finance criteria, namely that the plant & machinery is identifiable, moveable and durable. The basic concept is that the cost of the plant finance is spread out over a number of years within the expected useful life of the asset which aids the overall finances of the business.

An example where plant finance was put in place was a Plant Hire company that wanted to buy a used Komatsu excavator to add to its fleet of construction equipment that it hired out to various sites around the UK. The excavator was being bought second hand from a dealer with a purchase price approaching £50,000. A machinery lease agreement was put in place with payments taking place over a four year period.

Request a quote from our brokers for your plant finance requirements.

Selecting which approach to use for equipment funding will firstly need to consider the type of asset that is being acquired as the general criteria adopted by the finance providers is that the asset must be durable, identifiable, and moveable.

The equipment loan can take three main forms; hire purchase, lease purchase or an operating lease. There are also a number of other terms relating to refinancing existing equipment loans, such as sale and leaseback.

The decision about which direction to go for the equipment funding also needs to consider the seasonality of the business and the cashflow demands of your business. It would be sensible to align the payment schedule to the revenue earning or cost saving value of the asset to the business.

Finally, when financing equipment the tax treatment of the asset financing method is also important as it can make a measurable impact on the cashflows of the business.

Talk to our brokers and determine the best solution for your business.

The cost of the asset is broken down into a number of payments over one or more years within the expected lifespan of the asset. This assists the finances of the business as there is no major capital expenditure by the business at the time that the asset is purchased. There are different methods to finance the purchase including lease purchase and hire purchase, which are essentially the same in that the customer eventually owns the asset but with different payment profiles, and finance lease and option lease, where the lessor does not take ownership of the asset at the end of the term of the agreement.

Where asset financing takes place using the hire purchase and lease purchase approaches the funder uses the asset as the security and after full repayment has taken place then transfers ownership of the asset to the customer.

Where asset financing takes place using a finance lease the customer can continue to paying rental for the asset after the primary term has been completed and upon sale of the asset to a third party, will receive 85% to 95% of the sale amount with the balance being retained by the finance provider.

In the case of an option lease when the term of the agreement has been completed, the asset is returned to the finance provider and there is no secondary period available.

When selecting a method of asset financing the decision about which method is to be used generally takes into account the type of asset being purchased and the taxation treatment that is relevant.

Regardless of whether you have a well established business or have a younger business when you wish to expand cash is often a constraint. One approach to manage your cashflow is to lease equipment instead of buying it outright. Another option would be to rent equipment but it is often not cost effective as a long term option versus using equipment leasing.

Why do companies choose equipment leasing?

Firstly there are a number of cashflow benefits which are immediately apparent when choosing the equipment leasing option. Instead of one substantial payment at the time that your order the equipment, the cost of the equipment finance is spread over a number of regular payments. These payments can be usually be aligned with the specific requirements of the business, including seasonal cash flow circumstances.

In general payments amounts are fixed for the term of the lease agreement at a known interest rate, if desired. Customers are protected from changing interest rates, enabling accurate budgeting and cash flow projections.

It is advantageous to pay for equipment over the period that the system or asset is delivering benefit to the business. Payments can be structured so that they match the realisation of the benefits in terms of increased revenue or cost savings through improved productivity or improved processes.

Payment profiles can normally be structured to suit the available budgets, project roll-out programmes and/or cash flow requirements.

Secondly there are some tax benefits by adopting equipment leasing, the most important being that leasing payments may be offset against tax rather than adopting more complex capital allowance calculations.

Thirdly there are often flexibility benefits when using equipment leasing. For example you may be in an industry where the rate of change of technology is quite fast and a lease may allow you to upgrade ageing or obsolete equipment for more technically advanced equipment as time progresses.

The fourth reason that equipment leasing often makes sense if that you are not constrained to acquiring just the item of equipment you can afford to pay for in terms of the total capital cost at the time of purchase. Regular payments enable you to select the equipment that is most beneficial for your business need, rather than just selecting the item of equipment that you can afford at the time.

The fifth reason is that at the end of term, equipment can be returned to the lessor avoiding equipment disposal issues or costs, which is becoming increasingly more significant as recycling and disposal obligations are becoming more onerous as the years pass.

Refinancing plant and machinery is generally done on the basis that the equipment is durable, identifiable, and moveable.

Most equipment can be refinanced ranging from general plant and machinery, commercial vehicles, buses through to specialised production line machinery. The cash generated by the plant finance can then be used for any business purpose as required. This can include short term working capital which is especially useful when the banks are restricting access to further overdraft facilities or loans. Alternatively you may choose to invest the funds in purchasing other items of plant and machinery.

There are several methods of refinancing available:

Sale & Lease Back. In this case the plant and machinery is sold to the finance company by the current owner and then rented back to the seller for an agreed period of time according to an agreed regular payment schedule.

Sale & Hire Purchase Back. The plant and machinery is sold to the finance company by the current owner and then re-purchased by the seller over an agreed period of time according to an agreed regular payment schedule.

Loan & Chattel Mortgage. The finance company lends to the owning company (ie your company), with the security taken in the form of a chattel mortgage over the asset concerned.

Our brokers are experienced in refinancing plant and machinery and regularly put in place these types of agreements.