By Stephen Dinsmore, corporate finance manager, Armstrong Watson LLP
Business equipment and kit are often critical for the success of any business, but updating and buying new kit can also be a major expense.
Whether you need to purchase, replace or upgrade machinery, vehicles, furniture, information technology or tools, you may find yourself in need of bespoke funding to make it happen, and whether you need to lease, buy or borrow, there is a range of funding solutions to consider.
These include:
- Finance lease – A finance lease works in a similar way to renting any equipment that is needed. The asset is typically leased for its useful life. It is not owned at the end of the agreement but gives flexibility and means that your business will not be left with outdated equipment.
- Operating lease – An alternative to a finance lease is an operating lease. This is where the lender will effectively rent the machinery or equipment to your business. The rental is calculated on the difference between the initial cost and the estimated residual value of it at the end of the rental period. This can be a helpful way to enable the use of more expensive pieces of equipment for businesses. As with a finance lease, at the end of the agreement the equipment is either returned, sold to a third party by the lender or a new lease agreement is entered into.
- Contract hire – A form of operating lease that is most commonly used to access new vehicles. Payments are calculated based on the difference between the purchase value and the estimated residual value of the vehicle at the end of the agreement. This helps to keep payments lower and, as with operating leases, generally can enable a more expensive vehicle to be acquired.
- Hire purchase – A hire purchase facility may suit your circumstances if you would prefer to own the asset at the end of the agreement. Payments are similar to a finance lease and are based on repaying the full cost of the asset but at the end of the agreement – subject to an additional option to purchase fee – ownership will revert to you.
- Loans – Loans are a common way of funding business equipment and kit, especially for large or long-term projects. You borrow a lump sum from a lender and repay it with interest over a period of time. This can help you access the funds you need quickly, retain ownership of the equipment and kit, and choose from a variety of loan types and repayment options.
If you would like support in accessing funding for business equipment and kit, please get in touch. Call 0808 144 5575 or email [email protected] for more information.
