Financing eequipment from a foreign supplier might not be as straightforward as one would think. Strangely however the larger the transaction the easier it is. Different finance companies have different views of what can and cannot be done so it is worth speaking with a good independent finance broker that can guide you though the various options.

There are only a few finance companies that can help with hire purchase or the finance lease of equipment from a foreign supplier. It is always worth trying to get the finance in place well in advance of you actually requiring the facility. As most finance companies will agree a facility for a max of 90 days it is best working out your options no more than three months in advance.

There are two ways of funding equipment in this way. The first is for the customer to purchase the equipment from the foreign supplier. They will have entered into an agency agreement authorising the customer to purchase the quipment on behalf of the finance company. In the terms of the agency agreement it will have been agreed that the finance company will then provide a finance lease agreement or a hire purchase agreement to the customer. Certain finance companies will will only transact these agreements at a certain level because of the  amount of paperwork involved. The other disadvantage is that the customer must be expected to pay for the goods up front. Sometimes if the foreign based supplier  requires paying in advance then this can be the only way to finance plant and machinery supplied by foreign suppliers.

If there is a good relationship with the foreign supplier  you may still have to enter into an agency agreement however it may be possible  for the finance company to pay the foreign supplier direct. For this to happen the goods must have landed on the UK so the finance company can inspect the goods.  It may even be possible to structure a deal so no VAT is paid to the finance company. This only works with non UK invoices. Give us  a call to find out!

There has been a recent increase of customers wishing to replace commercial vehicles.  There are many different ways of providing vehicle finance and which option is best  depends on the circumstances of each business. In additionthe dramatic change in fortunes of many businesses and indeed finance companies has dramatically changed how vehicles can be financed.

 Weare seeing many businesses coming off contract hire deals and needing to replace vehicles passed their best. The problem is that the funders are very difficult when it comes to agreeing contract hire deals. If there have been any trading issues or  changes in circumstances contract is not the easiest form of finance to get approved.

XL Business Finance however has sourced a number of commercial vehicles recently at much bigger discounts than if the customer had just walked in off the street. This is because we deal a multi franchise car and commercial vehicles supplier which deals with all the contract hire companies. The savings are potentially massive. We tend to put these vehicles straight onto a hire purchase or finance lease agreement and the monthly payment is often not much higher than they would have been paying on a normal contract hire deal. In addition the vehicle which becomes the property of the business at the end of the agreement can be used for a further payment without any additional cost or can be used in a deposit in your next deal.

Asset finance leasing is becoming increasingly more difficult to organise. With the exit of Lombard and Hitachi from the broker market there are only a few funders remaining in the market place. Many high street banks have their own asset finance division but they tend to do only the bigger deals over £50,000 for their own customers. If the deal is for under £50,000 they will potentially push the customer down the loan route.

The problem with this is that it could restrict a businesses ability to organise future non asset based lending.  What is the point of utilising  valuable credit lines and funding asset purchase via loans instead of using a third party funder to provide a hire purchase or finance lease facility. In our opinion any capital expenditure is best suited to a hire purchase or finance lease facility which will leave the bank credit lines available for a rainy day.

We say it time and time again. Use the bank for clearing facilities, an independent for your factoring and invoice discounting. Remember if you need an overdraft it wont grow with the business like factoring and invoice discounting and any overdraft is potentially repayable on demand. Using a third party leasing company will ensure that you don’t have too many eggs in one basket and you are not exposed too much to any one financial institution.

There are still third party finance companies open for business. Getting deals agreed isn’t as easier as it was 18 months ago however a good independent finance broker will be able to guide you through the pros and cons of the different finance companies.

We often get asked which is the best way to finance capital equipment. In short the answer can be subjective and we will always refer you to your own accountant. However we can provide you with the differences which will probably point you in the right direction.

A hire purchase and finance lease facility are both ways of funding capital expenditure requirement however they are structured in slightly different ways and have slightly different tax treatment.

With a hire purchase facility all the VAT must be paid up front with a deposit of usually 10% of the net amount. At the end of the agreement and with payment of the final payment an option to purchase fee is paid and legal title passes to the customer. The equipment is shown as an asset in the companys balance sheet from the onset of the hire purchase agreement with a corresponding liability for the finance agreement. Capital allowances are claimed on a reducing balance basis.

With a finance lease the equipment is still shown as an asset and liability in the balance sheet however there are several fundamental differences. Firstly the VAT is spread over the term of the agreement and paid with the monthly rentals. Therefore from a cash flow point of view finance lease can work better for some customers. Instead of claiming capital allowances the monthly rental is offset against the profit and loss account therefore the full benefit from a tax point of view is claimed over the exact period of the lease. This can be advantageous if the equipment being funded is high tech and will need to be replaced at he end of the agreement. However at the end of the agreement the finance lease will go into secondary rentals which are equivalent to one months rental being paid on an annual basis. Alternatively the kit can be sold and the customer retains typically 95% of the sale proceeds. The remaining 5% is paid to the finance company along with the VAT

XL Business Finance was recently approached by a prestige vehicle dealer who had been struggling to obtain finance for one of his clients. His usual sourses of finance were struggling to obtain the necessary funding. As an independent finance broker we were able to approach the finance market and find business finance via a specilaist prestige vehicle funder. As a result the owner and director is now driving around in his spanking brand new Ferrari. The same business has just ordered a pimped up Porsche cayenne to be financed via the same funder.

The finance comapny we used was a small not so well known privately owned finance company. Although the customer was very profitable, had a grade one credit rating and a muti million pound net worth, suprisingingly the high street finance companies and banks did not want to finance these vehicles. In addition a very substantial deposit was avialable from the customer.

The stance from the balance sheet lenders on prestige vehcle funding at the moment is that they just dont want to do it. It appears that they will not finance fund luxury items which are not core to the main business activity. This is most unfair as it is just another example of the banks and high street finance companies restricting cash and compouding the credit crunch. The bankers are having their wings and bonusses clipped so why should anyone be driving around in a nice car if they can’t. Kill Joys!

It also adversely affecting the residual value of prestige vehicles as little finance is available rsulting in the plummiting values! Vehicle finance options.

So the banks have been told to start lending money to businesses and individuals to help kick start the economy. The truth is the banks have had their fingers burnt (deservedly so, some may say).

All high street banks and finance companies have tightened their underwriting criteria. Some have withdrawn from certain sectors and some have withdrawn completely. The result is that there seem to me more deals knocking around the broker market as customers are trying to find equipment finance for their acquisitions and investments.

The problem is that the second and third tier funders are awash with more deals than they have ever had. In uncertain times and possibility of a long recession, these second and third tier funders are cherry picking deals. They are concentrating on hard assets with good residual value, strong covenants and a good PG. Their attitude is a ‘take it or leave it’ mentality, as they know the customers have little choice. Interest rates tend to be on the higher side as they know the banks and high street finance companies are not playing ball.

The result is little choice and higher rates. It is now very difficult to organise finance for new start businesses,  high tech equipment and businesses with a poor trading history. The good news is that there are still funders which can cover most eventualities (however there are fewer of them) and a good finance broker has never been able to add as much value.