Finance Products

Financial solutions for businesses come in all shapes and sizes

Available Finance Products

Finance doesn’t just come in one-size-fits-all, we can help with finance solutions to suit all types of client needs.

Hire Purchase

The most typical and readily available credit facility is Hire Purchase.

Having sourced your asset and negotiated the final purchase price with the supplier, you pay a deposit to the finance company (typically 10-20%) and they then take title direct from the supplier. You are technically not the owner of the asset during the agreement but subject to eligibility you can still claim the writing down allowances as though you had made the purchase outright.

On taking out a Hire Purchase agreement you would usually be required to pay a documentation (administration/arrangement) fee and the full purchase VAT. You then, subject to eligibility, recover the VAT yourself. The outstanding amount and interest is then repaid in pre-agreed instalments over the period of the agreement.

Agreements can be fixed or variable rate, and the monthly commitment can often be reduced by the inclusion of a balloon/residual value clause.

Some points of value for Hire Pirchase:

  • Ownership title passed on completion of the agreement.
  • Monthly payments do not attract VAT.
  • On balance sheet for the business user.
  • Capital cost can be written down for tax purposes on a reducing balance up to £3000.00 against taxable profits per annum.
  • Interest (usually without limit) is also allowable against taxable profits but may be restricted for private use.

Lease Purchase

Lease Purchase is almost identical to Hire Purchase, the difference being that instead of paying a deposit you typically pay a deposit as a multiple of the repayments. The remaining balance and interest is repaid in instalments. The number of instalments is defined by the pause.

Example:
Hire Purchase: an agreement would have a 10% deposit followed by 36 monthly repayments.
Lease Purchase: 3 payments in advance followed by 33 (if terminal pause) or 35 (if spread pause) monthly repayments.
Your eligibility for the VAT and writing down allowances is the same for both and you can typically expect the fee structure to be the same.

Some points of value for Lease Purchase:

  • Funding option with a minimum deposit or upfront instalment and fixed monthly payments.
  • The agreement can carry a final payment called the balloon or residual which reduces the monthly payment during the agreement.
  • Ownership title passed on completion of the agreement.
  • Monthly payments do not attract VAT.
  • On balance sheet for the business user.
  • Capital cost can be written down for tax purposes on a reducing balance up to £3000.00 against taxable profits per annum.
  • Interest (usually without limit) is also allowable against taxable profits but may be restricted for private use.

Finance Lease

With a Finance Lease the finance company takes full ownership of the asset and rents the goods to you over a predetermined period. The finance company can claim the writing down allowances and convey this benefit to you by reducing the rentals.

The purchase price used to calculate the rental is the purchase price net of VAT. When acquire a VAT qualifying car, if leased, the rental is calculated on the net price of the car and not the gross price as it would be in a Hire Purchase.

For finance lease, you will source the supplier, and having paid the documentation fee and an initial payment of a multiple of rentals, substantially all of the remaining cost of the asset is spread over the agreed primary period in accordance with the pause.

The rentals attract VAT that can be recovered subject to eligibility. As the finance company is the owner of the asset, you will not need to pay the purchase VAT at inception.

You can include a balloon rental to reduce the value of the primary rentals and at the end of the agreement you may have the option to enter into the secondary period. As you have generally covered the entire capital cost of the asset and hire charges (interest) in the primary period, should you wish to continue to use the asset, a secondary or peppercorn rental is charged. This rental typically approximates to 3% of the original cost and is a one off annual payment. As you are not the owner of the asset, you cannot sell the asset during the rental period. However, as you are generally covering the total cost and hire charges within the primary period, you will be entitled to a share of the sale proceeds should the leasing company allow you to sell on their behalf. Your share of the sale proceeds is usually agreed at inception and is typically 95-99%.

Some points of value for Lease Finance:

  • Funding option with a minimum deposit or upfront instalment and fixed monthly payments.
  • The agreement can carry a final payment called the balloon or residual which reduces the monthly payment during the agreement.
  • A percentage of the sale proceeds are returned after the vehicle has been sold, usually 95%.
  • Ownership title retained by the finance company.
  • Off balance sheet for the business user.
  • Monthly payments attract VAT.
  • 50% of VAT on monthly payments reclaimable as long as the user is VAT registered.
  • Monthly payments allowable against taxable profits subject to Inland Revenue guidelines.

Operating Lease

An Operating Lease is similar to a Finance Lease. It allows you to rent the asset from us while you need it.

The key difference between the two; an Operating Lease is only for part of the asset’s useful life. Meaning you pay a reduced rental because the cost is based on the difference between the asset’s original purchase price and its residual value at the end of the agreement.

An Operating Lease means that you have full use to the asset for as long as you needed but without the burden of responsibility of disposing of it or recouping its residual value.

Some points of value for an Operating Lease:

  • Low initial outlay – No heavy upfront investment and quick access.
  • Full use of assets without having to buy it outright.
  • Flexibility; Re-rent, purchase or return the asset at the end of the term
  • Reduced rental cost as rental is based on a percentage of the original capital cost.
  • Off balance sheet funding.
  • Reclaim VAT on rentals.

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Your Business Finance Solution

When you have a growing business financial pressures can arise that slow your growth – Finance could help you grow sooner.

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