New equipment can often unlock opportunities and empower your business to grow faster. However, the vehicles, machinery or equipment you need to take advantage of opportunities often come with hefty price tags.
Thankfully there are ways around the significant upfront costs. Asset finance was designed for this exact problem and is helping businesses across the construction industry access expensive equipment by splitting the cost over smaller regular payments.
Asset finance lenders purchase equipment from businesses and lease it back to them. This means construction companies don’t have to tie up existing lines of credit or use cash reserved for other purposes on the tools they need to grow. Instead, the equipment is made accessible at an affordable monthly rate.
There are three main asset finance options;
- Hire Purchase
- Lease Finance
- Equipment Refinancing
There is no best option, however. Each has its unique benefits. The right choice for you will depend on your specific situation and goals.
One of the most common forms of asset finance is hire purchase. Hire purchase allows you to purchase the asset outright at the end of your contract. However, it is worth noting that hire purchase requires VAT to be paid upfront, and the deposit may be more sizeable than other asset finance options.
You can structure hire purchases with or without an end of term balloon payment (smaller initial costs, with a larger amount paid at the end of the contract). Plus, you will be able to claim some capital tax allowance. Hire purchase is best suited for equipment that will provide continued value beyond the contract term.
If you only need the equipment for a limited number of projects, lease finance may be a better solution. Leasing is designed like a rental, where you return the asset at the end of the contract.
With lease financing, deposits are typically lower, and the VAT is spread across the term. This makes the initial outlay of lease financing lower than with hire purchase. In addition to the lower upfront costs, you can offset lease finance monthly payments against revenue for tax purposes. (However, you cannot usually claim capital allowance.)
When looking for funds for new equipment (or any other business area), you may not need to look any further than your existing equipment. Equipment refinance is one of the best ways to free up funds. With equipment refinance, you sell equipment you own outright and lease it back. This frees up the tied-up capital and moves the asset’s cost to monthly payments.
The freed-up money can help you access many other opportunities that far outweigh the cost of the monthly instalments. Equipment refinance is available with both hire purchase and lease finance options.
Access New Construction Opportunities
New opportunities present themselves all the time. Not having the right equipment to hand shouldn’t be an issue. With asset finance, you can free up capital and replace hefty upfront costs with affordable monthly instalments. Proper use of finance options is key to construction businesses enabling them to get the right tools for the job and take on new projects.