Restructuring / Refinancing
What is Leasing and Asset Finance?
The definition of leasing and asset finance is the use of credit or leasing facilities to acquire possessions or property for your business. The leasing or asset finance provider will require security to be taken on the asset and this is usually independent of any other security, the cost of is spread over the lifespan of the asset being purchased.
Assets for your business that can be acquired this way normally have a readily realisable resale value and so are classed as tangible assets usually.
Leasing and Asset Finance – The Benefits
Once you find a provider for your business leasing and asset finance facilities are quite straight forward to organise. The cost of the asset can be linked to the amount of income it generates. Cash flow management can be simplified as the rental is agreed at the time an arrangement the leasing or asset finance is finalised. Since the leasing or asset finance agreement is a stand-alone facility other lines of credit are not involved and so it doesn’t affect working capital.
In comparison with other financing options leasing and asset finance has some distinct advantages.
Leasing & Asset Finance versus Bank Loans
Any borrowing from the bank to finance assets will take up some of the credit available to your company from your bank and will probably have an impact on your ability to extend any overdraft facility to be used as working capital. Compared to this a lease is unlikely to have any impact on the credit facilities available to your company.
Any company assets financed by funds from a bank have to be shown on the balance sheet and the bank can also ask for more security such as a debenture over book debt or a charge over freehold property. The assets can also have writing down allowances applied but only the interest charges on a bank loan can be claimed against tax; contrary to this leasing payments can all be offset against any taxable profits.
A lease finance company cannot ‘foreclose’ on the leasing arrangement whilst payments are being made whereas bank loans are normally repayable on demand.
Leasing & Asset Finance versus Bank Overdraft
A bank overdraft should only be used as a short term means of providing finance to fund working capital in a company and is not suited for long term borrowing or financing asset acquisition. Interest on a bank overdraft and is normally variable depending on the bank base rate and is usually calculated daily, repayment of a bank overdraft is on demand.
An asset finance arrangement or leasing can make budgeting significantly easier. At the outset of the leasing or asset finance arrangement payments are normally fixed and do not vary irrespective of changes in the bank base rate do the monthly payment is constant. This simplifies cash flow management and financial forecasting within the business.
If you do use overdraft facilities to finance any assets these will have to be shown on the balance sheets and as with bank loans writing down allowances can be applied. You may be able to claim that part of the overdraft interest applied to the acquisition, again leasing payments in comparison can all be offset against taxable profits.
Leasing & Asset Finance versus Cash Purchase
The use of cash within the business to make an outright purchase of an asset will have an immediate effect on cash flow and in turn could reduce financial resilience within the company. Leasing assets leaves cash within the business allowing for greater versatility and the true cost of leasing actually reduces across time as the value of money reduces in line with inflation.
The assets financed by cash will have to be shown on the balance sheet although the asset value may be written down by the appropriate amount each year.
Leasing or asset finance however allows all the payments associated with a leasing or asset finance arrangement to be offset against taxable profits each year.
In these days of increasing technological advances, leasing provides a business with a means of adapting to technological change, allowing assets to be upgraded or added to in line with changes in demand within the business.
Business loans are regularly used by business owners to access cash needed for starting up a new business, growth or improvement. There are a many programs and lenders available to use, so it’s important to understand your specific needs and find a loan that works for you.
What Is A Business Loan?
A business loan is financial help available to business owners of any sizes who need funding to help and grow their business. Start-up businesses and small businesses typically have a more difficult time than others securing a business loan, but it is certainly possible. Regardless of your business size, any lender you look to with will want to see firm documentation that supports the feasibility of the business as well as the intention for the loan.
What Can I Use It For?
Business loans are used for many things. Some common uses include capital investment, start up costs, refinancing of business debt and expansion of the business. Most business owners will apply for a business loan at some point because it is common to need extra funds at various stages of a business growing.
Where Can I Get A Business Loan?
Banks are a common lender of business loans but are often more conservative in their lending decisions. For this reason alone a bank is much more likely to get a loan underwritten to larger or more established business. It isn’t impossible to get a loan from a High Street bank if you’re small or just starting up but you will usually need to provide a lot of documentation and business plans.
There are many other sources of business loans in the UK, so have a look at lending sources. There are lenders and angel investors that specialise in small business or start up loans, as well as venture capitalists seeking an opportunity for investment. Additionally, there are several government programs designed to assist small or new business owners securing a business loan.
What Documentation Will I Need To Apply For A Business Loan?
Specific documentation will sometimes vary a bit depending on the lender but there are a few things that you will be asked to provide whoever you use:
- An up to date business plan which must include an overview of the market and potential customer base for your business
- Business and personal financial statements
- Collateral to secure the loan
- Incorporation or LLC documents (if applicable)
- Proof of ownership of the business or sale if the business was purchased by you
- Any Tax returns or credit references
- Material contracts (if applicable)
The basic items you will need are listed below but just remember that any lender will probably have their own list of information they will want you to provide.
Are There Different Types Of Business Loans?
There are many different types of business loans and sometimes the choice can be very confusing for some people. Some examples include specific programs for small businesses, industry specific loans, community development loans, “micro” loans for smaller amounts, and many other different options. Whatever it is that your business needs there is a relevant business loan for you and your Company somewhere out there.
How Do I Find The Right Business Loan?
Finding the right business loan for you takes a lot of time and effort. Research is the first thing so gather information about potential lenders and any programs that may be suited to your needs and then speak to a representative from these options to get more information. Outline your specific situation and ask about options that may be available to you. Persistence and perseverance will pay off in your pursuit of a business loan.
Obtaining a ‘business loan’ can seem a daunting task but it’s certainly manageable if you come across as organised and prepared. You need to demonstrate to the potential lender that you are a good candidate for the loan by providing thorough documentation about your business. And don’t give up if the first lender you ask turns you down, there are a lot of different lenders and lending programs available so just keep looking until you find the one that works for you.
A capital investment is the acquisition of a fixed asset that is anticipated to have a long period of use before it has to be repaired or replaced. Two of the most easily recognisable examples of capital investments are property or land. A capital investment can be made any time that a company acquires goods that will be benefit the operation of the business, but will not be used to cover any operational costs of the business.
A capital investment doesn’t have to be an asset that is equipment or land, investment capital can be something as simple as an amount of money that is kept separate in an interest bearing account or something similar. As this resource is not being used to cover current business expenses capital assets of this type are available to be used to generate additional revenue by accruing interest. This is why it would be proper to consider an initial sum of money used to open a standard savings account as a capital asset, as a rate of interest will be generated from the principal amount each year turning the asset into a capital investment.
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