Easy steps to fund your diversification project

Are you looking to raise finance to fund a diversification plan? Business Finance Brokers Ltd can help you secure asset finance from 12 up to 84 months on projects such as a new agricultural building; milking parlour (for cows or goats); pigs and pig arcs; revamping a building to be used as a farm shop; and the fittings, fridges, ovens, display counters and equipment to make ice cream, cheese or bread; or for the purchase of hog roasting ovens; refrigerated vans; glamping necessities; log cabins; or mobile homes for staff use – to name but a few.

There are four main funding options which may be available to you:

■ Hire purchase
■ Lease purchase
■ Loan
■ Contract hire

Short-term funding solutions of hire purchase or lease purchase are typically used for identifiable assets (assets which have a serial number/chassis number and/or registration number).

What is hire purchase?

A hire purchase agreement involves acquiring an asset and spreading the repayment cost; usually with monthly repayments. It is a flexible option so your business can easily budget for the asset, as well as take advantage of the flexible repayment terms and fixed interest rates. Business Finance Brokers can tailor payments to suit your cash flow.

■ Usually a small deposit will be required (typically up to 10 per cent but this can vary depending on whether there is a part exchange or on the repayment structure)
■ VAT on the equipment cost is payable by you up front, in full
■ Documentation fee payable up front ( depending on the finance company, this can be up to £125.00)
■ Regulated* hire purchase agreements have the flexibility for you to make early repayments or over payments at any point during the agreement.
■ Hire purchase is a good option for businesses looking to purchase assets that have a long term use. The duration of a hire purchase agreement is usually between 12 and 72 months.
■ The finance company will hold title to the equipment until the Option to Purchase Fee is paid by the customer with the final payment, at the end of the agreement. Upon payment of the Option to Purchase Fee, title passes to the customer and the finance company has no further interest. Depending on which finance company is used, the Option to Purchase Fee can be as low as £10 and up to £100
■ Hire purchase gives the same Capital Allowances as if paying outright in cash

*Regulated customers are Sole Traders or Partnerships up to three partners. If there are four partners or more this becomes a non-regulated business.

What is finance lease?

Finance lease is another option that the customer may choose primarily for business and tax purposes. The main differences to HP are:

■ A finance lease is an agreement in which you get full use of the asset without actually owning the equipment. Ownership of the equipment is retained by the lender
■ You can continue leasing the equipment at the end of the primary period; at which point a secondary rental specified on the finance lease documentation will commence. The Secondary Period Rental may vary depending on the finance company used.
■ Rental charges can be offset against profits and claim VAT back
■ VAT is paid with each payment rather than at the beginning of the agreement
■ The asset can still be sold during the primary term and you will get a rebate for the remaining rental charges. You may be eligible for up to 100 per cent of the sale proceeds after settlement, or the balance after payment of any settlement owing.

Finance companies will lend money against an asset using hire purchase or lease purchase where they can identify that asset and get access to re-sell should you default on your payments and a satisfactory resolution cannot be reached.

If you are not VAT registered, leasing may be a better option for you. Because you pay the VAT with each payment, you do not have to find the VAT upfront, and can reclaim some of the VAT if you become VAT registered within a specific time period.

What is loan or contract hire?

Loans are used for non-moveable assets such as:

■ Buildings
■ Concrete for flooring, drives or yards.

The exception to this is dairy cows and also beef fatteners (where they do have an identification number but they are financed on a loan agreement). Evidence is required to support the loan (i.e. a quotation for the goods). Depending on the strength of your existing business, we may need a set of accounts and/or a business plan. With a loan agreement the money is paid directly to the customer.

Contract hire is an agreement to rent an asset for a specified period of time.

■ No intention for the end user to acquire the asset at the end of the primary lease period
■ Asset is carried on the lender’s balance sheet
■ Rental period is for less than the estimated useful life of the asset.

Equipment can be repossessed if the customer defaults on their repayments. On Regulated Agreements, if the customer has paid over a third, the finance company will require a court order to do this.