Through direct relationships with mainstream financial institutes we have a new era of unsecured fixed rate loans. We fully understand your practices day to day financial requirements. SWS can provide unsecured fixed rate business loans and arrange asset finance for all your garage equipment sales needs.

The most popular method of financing goods, this involves all the VAT and a deposit by means of a % of the gross price paid on signing. The goods go on your balance sheet as an asset and you claim the normal write-downs for tax that apply. At the end of the agreement the goods are yours.

The ideal format if cash flow is an issue and you do not have the attitude that you have to own the goods. The rentals that are due are a liability on your balance sheet. A lease is ideal for cash flow as the VAT does not have to be found at the outset of the agreement but is added to each payment as it progresses. At the end of the agreement you usually sell the goods to a third party on behalf of the finance company and pass over a % of the proceeds. If you wish to keep the goods on a lease you may enter into secondary rentals.

Simply this is contract hire. The process is: the funder reduces the cost of the monthly payments by assessing a future value to the item on completion of the ‘rental term’. This shows as a liability on your accounts and does not form an asset. At the end of the agreement the goods are returned without any opportunity to ever own them. This is an ideal finance product for goods such as cars and vans that have a determined life and are used for a specific purpose.

This enables long term hire of equipment with the option to keep the agreement going after the minimum contract term for the same rental payment. This style of finance applies in the main to agreements with service contracts were, if continued, you will keep the same service levels on older equipment. From a seller’s point of view the equipment never belongs to the customers and it can become a sales vehicle to sell upgrades.

Any property with an exclusive commercial use can be financed by this method. There are a multitude of schemes in the market place, each with its own particular features and quirks. In today’s current climate many products are being changed or removed, this is the best time to use RFL Credit as your brokers to ensure you get the best deal.

Asset Finance is the ‘provision of credit or leasing facilities to aid your acquisition of business assets’. Security is primarily taken on the asset concerned and is generally a stand-alone facility. The cost is spread over a period up to the useful life of the asset. Assets that can typically be funded in this fashion are generally of a tangible nature with a readily available resale market.

Most items of equipment in normal use within the business or industrial environment may be obtained through leasing or hire purchase. Equipment can cost as little as a few thousand pounds, or more than £10 million in the case of some major industrial plant machinery.

Proposals up to £200,000 can have a decision on finance the same day from a selection of funders.

The cost of the asset can be linked to the income it generates

Relatively straightforward facility to arrange

The rental profile is agreed at inception allowing simple cash flow management

Stand-alone facility that leaves other lines of credit intact for working capital

Unlike an overdraft, asset finance is generally non-cancellable providing the agreement is maintained correctly

Equipment types that are suitable for hire purchase or leasing?

What is Hire Purchase?

A Hire Purchase Agreement is a way of borrowing money from a Finance Company for the purpose of purchase goods.

If you were to borrow money to purchase Equipment you would make regular payments over a period normally between 18-60 months depending on the age of the vehicle.

On the final payment, ownership is passed to the customer.

Although the Finance Company owns the goods throughout the agreement, it is the responsibility of the customers to maintain and repair the goods at their own expense. The customer is also responsible for any loss or damage to the goods and therefore must be insured fully throughout.

Hire Purchase is a popular choice for private & commercial customers and is a very beneficial way of spreading the cost in budgeted monthly payments over a period of time.

Ownership at the end of the agreement.

Frees capital for other purchases or alternative investment.

No need to increase bank borrowings.

Accurate cash flow forecast.

For business users, any capital allowance available may be claimed.

For business users, interest can usually be offset against taxable profits.

Simple documentation resulting in faster decisions.

PLEASE NOTE THAT THE GOODS ARE AT RISK IF YOU DO NOT KEEP UP YOUR REPAYMENTS

The fundamental characteristic of a lease is that the ownership never passes to the business.

The finance house claims the capital allowances and passes the benefit to the business, by way of reduces rental charges.

The business can generally deduct the full cost of the lease rentals from taxable profits as a trading expense.

As with hire purchase the business will normally be responsible for the maintenance of the equipment.

Although the business does not own the equipment they have most of the “Risk & Rewards” associated with ownership. They are responsible for maintaining and insuring the asset on their balance sheet as a capital item.

When the lease period ends, the Leasing Company will usually agree to a secondary lease period at significantly reduced payments. Alternatively if the business wishes to stop using the equipment it may be sold second hand to an unrelated third party. The business arranges sale on behalf of the leasing company and obtains the majority of the sale proceeds.

Ownership of the goods at the end of the lease period – not classes as an asset – capital allowance is claimed by the lesser, i.e. the finance company – 100% Tax relief on the full payments is allowed by Inland Revenue – renewable rentals are available during and at the end of the primary term.

After all the payments have been made the business becomes the owner of the equipment either automatically or on the payment of an option to purchase fee. For tax purposes from the beginning of the agreement the business is treated as the owner of the equipment and so can claim capital allowances. The business will normally be responsible for the maintenance of the equipment.

Ownership of goods on day one – Looked upon as an asset on the balance sheet – capital allowance benefits are claimed by customer – only a 25% write down on a depreciating scale over repayment period is allowed by Inland Revenue – a proportion of the repayment interest can also be offset.

The only difference between an Operating and a Finance Lease is that the primary period to rentals does not cover substantially all of the capital cost and hire charges. Due to the fact that the asset needs to be sold on at the end of the primary period to recover the residual value; it is very rare for an operating lease to have a secondary rental period.

With the operating lease you may source the supplier, but it is often the case that the leasing company can acquire the asset for you cheaper (for example car leasing companies).

If the business needs a piece of equipment for a shorter time, then operating lease may be the answer. The leasing company will lease the equipment expecting to sell it second hand at the end of the lease, or to lease it again to someone else. It will therefore not need to recover the full cost of the equipment through the lease rentals.

This type of lease is common for equipment where there is a well-established second hand market, such as cars and construction equipment. The lease period in this case will be usually be for two to three years, although it may be much longer, but it is always less than the usual working life of the machine.

The business would not enter an operating lease asset on its balance sheet capital item.

End user does not retain ownership – a portion of the capital cost is deferred until the end of the lease period – a residual amount is determined at the outset of the lease agreement with supplier.

NB: This product is primarily used for public trust business, i.e. NHS and County Council, or for the purchase of vehicles.

In this case the owned assets are sold to the finance company that will then take full ownership of the assets. The assets are then leased back to the customer as a finance or operating lease. Thus if you require financing for an unsuitable asset or for project work i.e. “Turn Key” a Sale & Leaseback will enable you to put the equity of your existing assets to good use.

Asset Finance agreements can be based on Fixed or Variable Interest Rates.

A Fixed Rate Agreement has the total repayments or hire charges fixed at outset, and will not vary. This allows you to manage your cash flow more effectively.

In some cases the payments are fixed throughout the hire purchase or lease agreement, so a business will know at the beginning of the agreement what their repayments will be. This can be beneficial in times of low, stable or rising interest rates but may appear expensive if interest rates are falling. On some agreements such as those for a longer term the finance company may offer the option of variable rates of interest. In such cases rentals or installments will vary with current interest rates; hence it may be more difficult to budget for the level of payment.

Under both the hire purchase and leasing options, the finance company retains legal ownership of the equipment at least until the end of the agreement. This normally gives the finance company better security than lenders of other types of loan or overdraft facilities. The finance company may therefore be able to offer better terms.

The decision to provide finance to a small or medium sized business depends on that business’s credit standing and potential. Because the finance company has security in the equipment, it could tip the balance in favour of a positive credit balance.