Understanding Asset Finance
Asset finance is a general term that is used in the financial world to encapsulate different types of finance packages
. Some finance types include hire purchases, lease purchases, finance leases and operating leases, all of which should be understood on a basic level, especially if you are a business owner needing to buy equipment for your company.
Hire Purchase Asset Finance
Hire purchases are the most commonly referred to form of asset purchases and allow a business owner to take out a contract, pay a percentage of the deposit and then a monthly "hire fee" to use the item. Once the full purchase price - plus interest - has been fully repaid, the business owner can choose to buy the item at a predetermined fee, or return the item to the lender.
Lease Purchases in Asset Finance
Lease purchases are extremely similar to hire purchase, with the difference between these two types of asset finance being you make multiple repayments as a deposit rather than the upfront percentage that you would for a hire purchase. The remaining balance of the asset - plus interest - is then paid in a number of instalments which are defined by the contract.
A Financial Lease
In a financial lease, the asset is owned by the finance company. The finance company then rents the asset to you for a stated amount of time. At any time, the finance company can write down the allowances and let you use them as well.
With a financial lease, you are not able to sell the asset as it does not belong to you. Nonetheless, the finance company can allow you to sell the asset on their behalf in which you will be entitled to a share of the proceeds from the sale of the asset. Your share can be negotiated to as high as 99 per cent of the sale proceeds.
Using an Operating Lease
An operating lease is extremely similar to the financial lease so you should compare these two different finance assets to see which one is more desirable for your needs. The difference between these two is that with an operating lease during the primary period, you are not paying for nearly all of the hire charges and capital costs as you would with the finance lease. Operating leases hardly ever have a second rental period.
Discuss your asset finance options with your accountant, financial advisor or banking expert. By doing so, you will be able to ask specific questions relating to your circumstances and fully understand how each type of asset finance will impact you and your business.
Understanding Asset Finance
By: ElizabethMclean
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