For buying and refinancing business assets
We provide high-quality asset finance solutions for UK and international clients.
- Finance from £25,000 to £25m
- Repayment periods geared to the economic life of the asset
- Finance available on new, used and auction-bought items
- No asset age limit
- Great way to fund large machine or asset purchases
- Refinance existing assets to free up your company's liquid capital
- Cashflow matched repayments
- Equipment finance
Finance for luxury assets; general assets; Agricultural & Grounds equipment; high value cars e.g. Aston Martin, Audi, Bentley, Ferrari, Tesla; Hospitality & Leisure equipment; office equipment and furniture; Logistics & haulage; Technology & security equipment; Plant machinery; Gym & fitness equipment, and much more.
We can deliver enhanced, bespoke or exclusive terms through our market knowledge.
Call us on 0203 900 4322 to discuss your requirements.
Asset Finance - How it Works
Asset finance is there to give your business access to vehicles, equipment, and machinery that it otherwise would be unable to afford.
By spreading the cost of the asset investment over time as well as offering avenues for upgrades, eventual full ownership, and depreciation-based rental, asset finance provides a spread of options that are tailored to fit most business needs.
As obtaining new equipment in its entirety can drain cash reserves, effectively stifling capital for growth, asset finance is an important tool in a company’s repertoire, allowing the best of both worlds: equipment investment and fluid cashflow.
The Three Types of Asset Finance
There are three main types of asset finance, each adjustable to represent a full spread across the spectrum of business needs.
On one side of the spectrum is the desire to own the equipment outright, paying for the asset over time with a view to permanent ownership - represented in the main by Hire Purchase.
On the other side are contracts designed to rent assets for the short or medium term, with no intention of long-term ownership - this is accomplished through Operating Lease agreements.
Sitting somewhere in the middle is Finance Leasing, a version of asset finance that has the flexibility for end ownership without the obligation, to adapt to the changing needs of business.
1. Hire Purchase - Asset Finance for Eventual Ownership
Of the three forms of asset finance, hire purchase (HP) is the closest to a basic business loan. Its structure is a little specific, with a larger initial payment (called the ‘deposit’) but otherwise follows a familiar repayment structure of monthly payments that cover both the interest and a capital repayment on the loan principal.
The terms of the hire purchase agreement mean that the loan is essentially an asset-based secured loan tied to the equipment. In real terms, this means you don’t own the vehicle - you cannot sell it and it can be repossessed by the finance company should you fail to make repayments.
However, it is treated in almost every other way as if you do own it, thus responsibility for items such as insurance and maintenance are yours.
Hire purchase agreements may differ from one lender to another, allowing for flexibility in repayment structure, options such as a return after a time (often halfway through the term) if you are having difficulties making repayments or no longer want the equipment, and different interest rates.
Hire purchase is best for assets that will retain their value to you beyond the term of the contract, thus making permanent ownership financially sensible.
It is also excellent if you want unrestricted use and control of the asset.
2. Finance Leasing - Asset Finance for Flexibility
One of the greatest considerations of equipment investment and asset finance is that of ‘equipment lifespan’ and depreciation. Equipment lifespan represents the time during which an asset is the optimal tool for the job, and depreciation is how much its value falls during that time.
Equipment lifespan can be affected by multiple factors, for example, wear and tear on the equipment that leads to a point where maintaining it is no longer cost-effective; or obsolescence, when newer and more superior equipment renders the assets no longer optimal and an upgrade to the newer equipment is desired.
Finance leasing is a financial product that attempts to calculate the depreciation of the asset over the contract term and the repayments are structured so that you pay for that depreciation (plus a little profit for the finance company).
This example is oversimplified, forgoing other factors such as initial balloon payments, inflation, and lender fees and profit, but it does illustrate the basis by which finance leasing works.
During the term, you have full use of the asset though it remains the property of the leasing company. At the end of the contract term, the leasing company will want to sell the asset to realise that final value; this can be to a third party or to yourself.
Thus, finance leasing has a flexibility where at the end of the term you have the option to make one final balloon payment to permanently own the asset.
This flexibility means a finance lease has four options at the end of the contract term:
- Extend the contract - This is a renewal of the lease for another year or more, continuing in the same way as has been done so far
- Upgrade the asset - This is simply a return of the original asset and a new contract taken out on a more modern version.
- Purchase the equipment - You choose to pay one final balloon payment to buy the asset from the leasing company.
- End the lease - You hand back the asset and finish the contract.
During a finance lease, maintenance of the asset is typically your responsibility and if the equipment is returned at the end of the contract in a poor condition that lowers its final sale value, fees will be due to cover the difference.
However, the inverse is also true and an occasional side effect of finance leasing is that when the assumed depreciation is significantly lower than anticipated, the asset sells for more than expected and the finance company reimburses you for some of the payments you have made.
These situations are rare, but they do happen.
Finance leasing is good for medium-length ownership of equipment, when the asset is likely to be superseded by a superior model and permanent ownership offers no financial benefit. It is also suitable in situations where the future is unknown and decisions on ownership are best left to the end of the contract term.
3. Operating Leases - Renting Your Equipment
An operating lease is closest in structure to a simple rental agreement. During an operating lease, the asset is owned in full by the leasing company and responsibility for its upkeep and maintenance is also taken on by them.
Operating leases are fantastic for companies who do not want to deal with the day-to-day problems associated with asset ownership, but want a package that releases them from worry and responsibility.
An example is with a vehicle operating lease. A car under a full operating lease can be driven without worry regarding maintenance. Should a mechanical failure occur, the car is taken to a garage, repaired and returned to you with no delay.
Depending on the specifics of the lease, a replacement car is likely to be provided to cover the period of repairs.
Some operating leases even include insurance, allowing you to simply drive the car without concerning yourself with any of the hassles of ownership.
While comprehensive operating leases are typically more expensive in terms of monthly payments than other forms of asset finance, the worry-free approach is valuable and allows you to concentrate on your business rather than the nitty-gritty of asset upkeep.
Operating leases are typically shorter term, with upgrades to the latest equipment undertaken at the end of each contract term if the asset is still needed.
Assets obtained under operating leases typically come with more limitations than other asset finance options. Vehicles, for example, will have mileage restrictions, while other equipment will be restricted from modifications and customisations.
Asset Finance Case Studies
Read some of our most recent asset finance case studies below for real examples of how asset financing works in practice:
The Pros and Cons of Asset Financing
- Spread the cost to get high-value equipment with little capital investment.
- Upgrade to the latest technology without straining cash flow.
- Fixed repayments for efficient monthly budgeting.
- A range of options to suit your business needs.
- Worry-free maintenance options.
- Typically more cost-effective than loans for equipment purchase.
- Some tax advantages (depending on asset finance type).
- Good asset finance management develops a strong business credit history, improving later finance opportunities.
- Failure to make repayments will result in repossession.
- Contracts are tight, meaning you will be tied in for the length of the term.
- Early release fees may be considerable.
- Asset upkeep should be budgeted for (where applicable).
- Potential restrictions on use.
- Poor asset finance management can significantly impact future credit chances.
How To Apply
Looking to finance some big-ticket items for your business through asset finance? Contact our expert team at Clifton Private Finance and allow us to help you get the best deal possible.