Business Asset Finance - Hire Purchase v Finance Lease?
Discussion
Hi All,
In a position whereby a side business we own is expanding and there is a need to buy some more equipment / assets. The business is effectively a hire business and we hire the assets / machinery out.
We need to buy quite a few and don't have the cashflow to buy them all outright, so have been introduced to a broker who provides asset finance.
Now I'm well aware of the differences when buying a car for personal use through both of these finance options, but I'm struggling with working out the best way forward when it comes to business equipment and I was hoping the PH hive mind could provide me some clarity.
Key considerations for me here are that i want to be able to own the assets after the agreement finishes, and i also want the option to pay the finance off early (which i should easily be able to do 12-18 months into the term).
Now I know the biggest difference is how the VAT is treated. With it all being required up front under the HP agreement, and spread over the payments with lease. The broker is telling me this is the only real difference and that even under the lease option they can charge me a peppercorn payment at the end of term to own the assets.
Something doesn't feel right to me. All the brokers paperwork and financial guides are all steering me towards the finance lease; claiming that it leaves us with a lot more cash as we haven't had to find the VAT up front.
Can anyone tell me why I'm getting a strange feeling about it? My suspicions are thus:
1. A finance lease has a lot more commission attached / is a more desirable product for him to sell
2. I suspect you cannot settle finance early with the finance lease but can with the Hire Purchase? Again.. impacting his commission / payout.
Thanks in advance!
In a position whereby a side business we own is expanding and there is a need to buy some more equipment / assets. The business is effectively a hire business and we hire the assets / machinery out.
We need to buy quite a few and don't have the cashflow to buy them all outright, so have been introduced to a broker who provides asset finance.
Now I'm well aware of the differences when buying a car for personal use through both of these finance options, but I'm struggling with working out the best way forward when it comes to business equipment and I was hoping the PH hive mind could provide me some clarity.
Key considerations for me here are that i want to be able to own the assets after the agreement finishes, and i also want the option to pay the finance off early (which i should easily be able to do 12-18 months into the term).
Now I know the biggest difference is how the VAT is treated. With it all being required up front under the HP agreement, and spread over the payments with lease. The broker is telling me this is the only real difference and that even under the lease option they can charge me a peppercorn payment at the end of term to own the assets.
Something doesn't feel right to me. All the brokers paperwork and financial guides are all steering me towards the finance lease; claiming that it leaves us with a lot more cash as we haven't had to find the VAT up front.
Can anyone tell me why I'm getting a strange feeling about it? My suspicions are thus:
1. A finance lease has a lot more commission attached / is a more desirable product for him to sell
2. I suspect you cannot settle finance early with the finance lease but can with the Hire Purchase? Again.. impacting his commission / payout.
Thanks in advance!
We used to buy all our kit this way and have used a number of different providers. A lease purchase is what you need and you need to make sure the agreement states you will own the kit at the end of the agreement. Lombard Asset Finance is someone we have used in the past along with the manufacturers. In our case it was IT kit not plant but the principal is the same.
moonigan said:
We used to buy all our kit this way and have used a number of different providers. A lease purchase is what you need and you need to make sure the agreement states you will own the kit at the end of the agreement. Lombard Asset Finance is someone we have used in the past along with the manufacturers. In our case it was IT kit not plant but the principal is the same.
Thanks. Why Lease purchase over HP? Means i cannot pay the agreement off early with any benefit? Or have i misunderstood?RE lease finance; he has said he can send me an email saying I am allowed to buy the kit at the end, but that it can't be in the agreement as he could be accused of selling us the wrong product had we expressed interest in ownership?
It would be unusual for an asset finance lender not to offer a VAT deferral scheme.
In essence you get three months to pay the initial VAT, allowing you to reclaim it before or as you pay it.
Most asset HP schemes allow early repayment.
If you are at all unsure, approach another lender.
In essence you get three months to pay the initial VAT, allowing you to reclaim it before or as you pay it.
Most asset HP schemes allow early repayment.
If you are at all unsure, approach another lender.
RicksAlfas said:
It would be unusual for an asset finance lender not to offer a VAT deferral scheme.
In essence you get three months to pay the initial VAT, allowing you to reclaim it before or as you pay it.
Most asset HP schemes allow early repayment.
If you are at all unsure, approach another lender.
Thanks for the response. I shall ask about the VT deferral. Again, he hasn't mentioned this which is what is making me think he's got an ulterior motive to push us into lease finance. In essence you get three months to pay the initial VAT, allowing you to reclaim it before or as you pay it.
Most asset HP schemes allow early repayment.
If you are at all unsure, approach another lender.
Thanks.
This is what my asset finance guy uses as definitions. It might make it clearer in your mind:
Hire & Lease Purchase
Hire and Lease Purchase allows the customer to spread the cost of their investment and to gain title at the end of the agreement, either automatically or on a payment of an option to purchase fee. The agreement is usually arranged over a fixed period and with fixed repayments secured on the products being financed. For tax purposes, from the beginning of the agreement the business customer is considered as the owner of the equipment and can therefore claim capital allowances.
OR
Finance Lease
Finance Lease is similar to Hire Purchase in that the full cost of the equipment is recovered over the lease period.
Although the customer does not own the equipment, they are responsible for maintaining the asset and can deduct the full cost of lease rentals from taxable income as a trading expense. When the lease period ends the customer can agree to a secondary lease period with significantly reduced payments. Alternatively the asset may be sold to a third party.
Hire & Lease Purchase
Hire and Lease Purchase allows the customer to spread the cost of their investment and to gain title at the end of the agreement, either automatically or on a payment of an option to purchase fee. The agreement is usually arranged over a fixed period and with fixed repayments secured on the products being financed. For tax purposes, from the beginning of the agreement the business customer is considered as the owner of the equipment and can therefore claim capital allowances.
OR
Finance Lease
Finance Lease is similar to Hire Purchase in that the full cost of the equipment is recovered over the lease period.
Although the customer does not own the equipment, they are responsible for maintaining the asset and can deduct the full cost of lease rentals from taxable income as a trading expense. When the lease period ends the customer can agree to a secondary lease period with significantly reduced payments. Alternatively the asset may be sold to a third party.
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