Asset-Backed Recovery?

 

As SMEs and the broader economy enters a period of recovery from the pandemic, the importance of its assets to a business are in sharp focus:

·       Investment in assets facilitates growth

·       New assets help to meet the needs and changing demands of customers

·       Keep up with the volume of demand by increasing capacity with additional assets

·       Easy to quantify the economics of the investment in assets: Additional business generated – Cost of asset = Return On Investment

Asset Finance conserves cash in your business now, allowing you to budget for the months and years ahead.

There is now the additional incentive to invest in new assets from the Super Deduction tax relief scheme that the government announced in the budget – up to 130% of the cost of qualifying new assets in your business from 1^st April 2021 to 31^st March 2023 can be offset against the taxable profits of your business for Corporation Tax in that tax year.

Leasing Finance and Hire Purchase facilities are treated differently for tax purposes in your company’s accounts - I’d recommend discussing the best approach with your accountant, and government guidance on the Super Deduction scheme can be found here:

https://www.gov.uk/guidance/super-deduction

Some additional financial reasons for companies to use Asset Finance:

·       Frees up capital, tangible security and cash flow to be deployed for other purposes

·       Leasing Finance can avoid the issues of depreciation of the asset

Every Asset Finance lender will be comfortable with understanding and pricing different sectors or types of assets, which can broadly be split into Hard and Soft categories:

Hard Assets

Normally higher value assets, with longer retention of value:

·       Heavy goods vehicles, light goods vehicles, commercial vehicles and cars

·       Agricultural machinery

·       Construction machinery

·       Manufacturing machinery and plant

·       Recycling processing equipment

·       Printing presses

Soft Assets

Normally Leased and low residual values:

·       IT (Hardware and Software)

·       Audio visual

·       Furniture, fixtures and fittings

·       Security systems

·       EPOS (Electronic Point Of Sale) card terminals

For Asset Finance, expect an asset that holds a higher residual value to require a smaller deposit and minimal additional security, and vice-versa. 

Used Assets

Asset Finance can be used to purchase second-hand assets (for example, used vehicles or refurbished IT hardware); however criteria on age of the asset at the end of the finance term may apply, and the lender is likely to independently value the asset at the commencement of the facility.

Different assets, and a company’s situation, could determine the type of Asset Finance facility that would be suitable:

·       Leasing Finance: Your business doesn’t own the asset but agrees a lease usually for a fixed term and payments

·       Hire Purchase (HP): This allows your company to purchase an asset over an agreed term with agreed regular payments

·       Refinance: (or ‘Sale and Lease Back’) Your company may own assets that are either unencumbered or partially financed - lenders will fund your business against a proportion of this equity

·       Operating Lease: A specialised form of Leasing Finance where your company requires the asset for a specific term or project

·       Business Contract Hire (BCH): Exclusively used in the leasing of business vehicles, contract ‘options’ can include sourcing, maintenance and insurance 

Adding the new tax relief incentive to the already strong case for investing in assets for your business – growth potential and the ability to capitalise on new opportunities among others - should mean that your next step is to decide how best to fund the asset.

Make your company’s recovery Asset-Backed.

Mark Grant, April 2021.

info@fiduciacommercialsolutions.co.uk                      01636 614 014