Acquiring capital equipment is a major commitment for many businesses. It can often make sense for businesses to look for ways of spreading the cost of acquiring an asset, to coincide with the timing of the revenue generated by the business
Two sources of funding to achieve this objective are Hire Purchase and Leasing.
Hire Purchase and Leasing are financial facilities which allow your business to use an asset over a fixed period, in return for regular payments. You chose the equipment and a finance company buys it on your behalf

Hire Purchase.
After all the payments have been made, you become the owner of the equipment, either automatically or on payment of an option to purchase fee.
For tax purposes, from the beginning of the agreement, your business is treated as the owner of the equipment and can claim capital allowances. You will normally be responsible for the maintenance of the equipment. All the Vat is payable up front and therefore monthly rentals dot not attract VAT. The VAT is reclaimable if you are VAT registered.

Finance Lease.
The fundamental characteristic of a lease is that ownership never passes to your business. The leasing company claims the capital allowances and passes the benefit on to you, by way of reduced rental payments.
This can be a real benefit to your business if: 
* You are unable to make full use of capital allowances, for example due to low profits. 
* You prefer to get the cashflow benefit immediately, instead of having to claim capital allowances later.
Your business can generally deduct the full cost of the lease rentals from taxable income, as a trading expense.
With leasing your rental agreement is based on the net value of the asset. This means you enjoy an immediate cashflow benefit, as you will not need to pay VAT upfront. VAT is charged on your rental repayments. Although your business does not own the equipment, you have most of the risks and rewards associated with ownership. Your business is responsible for maintaining and insuring the asset.

When the lease period ends, the lease company will usually agree to a secondary lease period at significantly reduced payments. Alternatively, if your business wishes to stop using the equipment, it may be sold to an unrelated third party. You arrange the sale on behalf of the leasing company and keep the bulk of the sales proceeds.

Operating Lease.
Under an operating lease agreement, the leasing company will take a risk in the value of the asset at the end of the agreed rental term. This residual value will be taken into account when calculating the rentals. When your lease has ended the leasing company will hope to sell the asset on or to lease it again. An operating lease can be particularly useful for high-value assets that are needed for a specific term, eg: to support a contract. The leased equipment does not appear on your balance sheet.

Sale and Leaseback.
Refinancing plant, machinery and vehicles is an increasingly popular way of raising funds for businesses and can be a very effective financial tool for freeing up your cash flow. You sell an asset you already own to a leasing company to free up capital and they rent it back to you.
If your company has already purchased expensive assets such as property, machinery or technology you can sell them back to a leasing company who will reimburse you with the current value of the asset. You continue to use this asset as before and send the leasing company regular payments.
Asset refinance can make a company more flexible by allowing it to react to a change in market conditions or respond to a financial problem such as a bad debt. It can also help to free up capital so that a firm can take advantage of a new business opportunity.

What can be obtained by hire purchase and leasing?
Most items of equipment in normal use within your business may be obtained through leasing or hire purchase.
Some of these items are: 
* Plant and machinery 
* Commercial vehicles 
* Cars 
* Agricultural equipment 
* Hotel and catering equipment 
* Medical equipment 
* Computers including software packages 
* Office equipment
* Horseboxes
* Aircraft
* Marine

Contact Reservoir Finance on 0800 043 3469 to see how Asset Finance can work for your business.