What is equipment finance?
Equipment Finance, otherwise known as ‘asset finance’ is a very simple process that allows you to purchase the machinery or equipment that your business needs, whilst making the cost easier to manage. With financing equipment you are saving business cash flow for the things that matter most, paying your tax, VAT, utility bills, rent, etc. Not only can financing your equipment provide you with flexibility, it also brings tax benefits along with it. Worth running this past your accountant!
Generally, asset or equipment finance comes with great rates, depending on the type of asset, the strength of your business and sometimes your credit as a Director.
How does equipment Finance work?
The finance is secured against the asset which provides the lender / bank with security. Should you miss payments on your agreement, the lender has the right to repossess the asset, which is then sold at auction for a return on their initial investment. Equipment is graded either ‘hard’ or ‘soft’ and depending on the grade, this will affect the rate of interest provided. You generally get much better rates on hard assets compared to soft.
What is a ‘hard‘ asset?
A hard asset typically has wheels or bleeds oil, otherwise known as tangible, some examples are below:
– CNC Machinery
What is a ‘soft‘ asset?
A soft asset is otherwise known as intangible, it doesn’t have wheels and can’t always be touched. Some examples are:
Do I need to put down a Directors Guarantee (DG)?
Some lenders may require you to sign a Directors Guarantee (DG). There could be many reasons for this, the business financials may be weak, the Director may have a poor credit profile, the asset could be classed as ‘too soft’, the business might be brand new and therefore have no trading history.
Lots of Directors have to put down a Directors Guarantee, this is quite normal. However, if you’re an established, profitable company then a good broker should be able to get your finance completed without one.
Should I do a HP or a Lease?
That’s a great question and it really depends on a number of factors.
How is business cash flow at the moment?
Do you have plans to purchase more machinery very soon?
On a HP, you pay all the VAT upfront and usually have a small passing title fee at the end of the agreement of around £100.00 to own the equipment.
On a Lease, the bank pays all the VAT for you upfront, meaning you then pay VAT on top of each monthly payment for the duration of the term making a lease less of an outlay on the front end. At the end of the agreement you ‘passing title’ fee will be one extra monthly repayment. Leasing also comes with tax benefits and it’s worth speaking to your accountant you can advise on the best option for your business.
Some lenders can offer a VAT deferral, meaning you can take a HP and push your VAT payment into your next VAT quarter, buying you time.
So what is the process?
We will need some information from you in order to get your finance approved, such as:
– Latest set of filed business accounts
– Up to management information may be required (latest balance sheet & profit and loss)
– Last 3 months business bank statements
– Director details (DOB and address)
– What does your business do? How much experience do you have in the sector? Do you have any short or long-term contracts?
Once we have everything we need, we will submit your deal to a specific lender who then underwrites your application, taking into account many factors, like your business delphi score, your credit as a director, affordability within the business financials, etc.
Within 24/48 hours we should have a decision from our lender. Once accepted, we then request an invoice from the supplier of the equipment addressed to the corresponding lender, we then get the agreement drawn up and sent over to you for signing. Upon receipt of signed documents, the pay out is then released, usually same day however this can also take up to 12/24 hours to be processed.
How do I enquire?
You can enquire here, or you can call us to discuss your application over the phone – 01604 201510.
Alternatively, you can email us on firstname.lastname@example.org
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