Business expansion can be a Catch-22 situation. How do you spend the money you don't have, in order to get the money you need? It can be frustrating. You don't have to tie up your cash when considering the purchase of that equipment; there are a number of different asset finance options available today. What should you consider?
Equipment Loans
One of the first ways to help align your repayments to suit business cash flow is to consider equipment loans. In this case, you will actually own the asset from the beginning, which might be more advantageous in your case. The asset will become the security for the loan and in many cases you won't need to put a deposit down against the purchase. You can place the asset against your tax liability and consider it for depreciation on your books. When you take ownership of the equipment this way, your bank can register what is known as a "goods (or chattel) mortgage" for the asset. Some organisations may choose to trade in an old piece of equipment in order to reduce the finance costs.
Finance Lease
A finance lease means that the bank owns the asset and will lease it to you for a specified period. Usually, the asset will have residual value at the end of the lease agreement and this may give you an option to take ownership of it at that time. Optionally, you could take out a separate lease for the residual value at the end of the initial lease period, if needed. When a residual value is given to the asset it will reduce the size of the monthly payments.
Hire Purchase
Hire purchase is a different animal. Here, the bank will buy the equipment for you and will then hire it to you for a specified period. In this case, the interest portion of your repayment can be considered as tax-deductible. This option also allows you to use your cash for day-to-day activities, rather than tying it up in the asset.
Rent
Because certain items of equipment, especially in the technology field, can go "out of date" pretty quickly, you may choose simply to rent them instead of buying. These options are also usually tax-deductible and you simply return the equipment at the end of the agreed period.
Sale and Lease
If you already have certain items of equipment that are effectively tying up a lot of your cash, you should consider a sale and lease, or hire back agreement. Ask the bank to buy the equipment and either lease it or hire it back to you.
For more information, check out companies such as Oatram Finance & Leasing.
Share30 March 2015
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