Asset Finance
Delivering tailor-made Asset Finance and leasing plans for UK businesses. To ease the burden on your company cash flow, asset management provides access to the assets you require to operate without the initial capital outlay.
The basis for this type of finance is a rental agreement giving you (the lessee) the right to use assets owned by the lessor (finance company) for a specific period of time in return for regular payments (rental payments). We have given below several key advantages, disadvantages relevant to asset finance:
Your agreement can be used to asset finance nearly everything related to the purchase and installation of the asset in question. This could subsequently make available cash to pay for items such as employee welfare.
You have access to the asset with minimal up-front capital outlay. It also enables the costs to be budgeted for over time. In essence you pay for the asset with the income it generates whilst minimizing the drain on your working capital.
An operating lease preserves your credit options and does not influence your credit limit. This is because it is on the whole not classified as debt but as an expense (Please note that this advantage does not apply to finance leases!).
Lease payments are generally even, delivering easier cash management with more predictability than with a variable rate loan. The fixed interest rate of a lease also assists if interest rates rise. Operating lease payments are in most cases tax deductible, similar to depreciation charges but made with pre-tax money . Cash purchases however, are made with after-tax money.
Disadvantages
An asset finance lease is generally more expensive than a straight cash purchase, because the payments include finance charges. On the other hand, leasing could cost less than other forms of financing. You must also take into consideration the tax advantages when making this calculation.
The lessor could demand additional guarantees. This is dependant on the credit rating of your business. These can be provided by you, your partners or your bank and might affect your personal credit rating or your current standing with your bank.
You need to check whether it is possible to terminate your leasing contract early. It may be impossible to do so or at best under heavy penalty. Interest rates are generally fixed throughout the lease which may prove a disadvantage if interest rates fall during your lease period.