Asset Funding Options Compared

Funding New Equipment?

Your Asset Funding Options Compared

Do you need to invest in new business assets, such as IT equipment, plant and machinery or vehicles? Asset based lending brings a number of benefits which can vary depending on the asset funding options that are selected, and what each one includes or excludes from its terms. Finding the right equipment funding option for your business is important – as it will help you to control your cash flow more effectively and give you the equipment required for your business’ growth.

Use our questions below, and our asset funding options comparison guide, to help you find the answer to help you compare asset finance options and ultimately decide on the right contract for you.

Finance Lease

Do you need the security of regular payments and fixed interest rates?

Yes? In that case, a finance lease would be ideal for you. It offers flexible payment options and the option to reduce or extend the lease period, as well as fixed interest rates throughout the contract term.

Would you rather own the asset at the end of your contract?

If you would like ownership of the asset at the end of your contract, then a finance lease may not be the best option for you, as technically the asset must be returned at the end of the contract. You can renew your contract for continued use of the asset, but this will mean a renewal of your contract.

Would you rather be responsible for the asset’s management and servicing?

If you are happy to take responsibility of the maintenance and repairs of the equipment leased, then a finance lease may be the best option for you. The responsibility of the assets’ maintenance management can be discussed and determined before the contract is agreed upon. That way you can decide which option would work best for you before you confirm the terms of the contract.

Would you rather hand over the risk of ownership?

Under a finance lease agreement, the lessor will be the overall owner of the asset. This means that at the end of the finance lease contract you will be able to either return the asset to the lessor or extend your contract for further use of the equipment.

Hire Purchase

Do you need the security of regular payments and fixed interest rates?

Unlike a finance lease, a hire purchase agreement does not offer fixed rates. However, your payments can still be spread over a pre-agreed period according to the terms laid out in your contract.

Would you rather own the asset at the end of your contract?

If so, hire purchase is ideal for you. With this type of asset financing, you will be able to own it at the end of the contract. Depending on the terms laid out in your contract, this may mean that you will have to pay a balloon payment at the end of the agreement in order to own the asset outright.

Would you rather be responsible for the asset’s management and servicing?

You, the lessee, will be responsible for the maintenance of the asset under a hire purchase agreement. This may be advantageous if you would prefer to deal with specialised equipment in-house to avoid any delays on repairs or servicing.

Would you rather hand over the risk of ownership?

Then a hire purchase contract is not the asset finance option for you. With hire purchase you will be responsible for insuring the asset and take the risks and rewards of ownership.

Operating Lease

Do you need the security of regular payments and fixed interest rates?

Much like a finance lease, an operating lease offers regular payment instalments spread over a pre-agreed period of time, as well as fixed interest rates.

Would you rather own the asset at the end of your contract?

If you want to own the asset at the end of your contract, then an operating lease is not the option for you. The lessor will be the overall owner of the asset.

Would you rather be responsible for the asset’s management and servicing?

Either way – an operating lease will give you the flexibility to decide whether or not you would like to be responsible for the asset’s management, or if you would like support from the lessor in this instance.

Would you rather hand over the risk of ownership?

With an operating lease, the risk of ownership is split between the two parties – both the lessor and the lessee. This is because the lessor will take the risk of the residual value of the asset decreasing once the contract ends. It is still the lessee’s responsibility to insure the asset and to maintain it to a certain pre-agreed standard. If the asset is not maintained by the lessee to the pre-agreed standard laid out in the contract, the lessee may have to cover the cost of any maintenance or repairs that are required.

Contract Hire

Do you need the security of regular payments and fixed interest rates?

You do? Contract hire could work for you. Much like an operating lease, it provides you with regular payment instalments spread over a pre-agreed period of time as well as fixed interest rates.

Would you rather own the asset at the end of your contract?

Then contract hire isn’t the right choice for you. The lessor will be the overall owner of the asset as with an operating lease.

Would you rather be responsible for the asset’s management and servicing?

If you would, then this can be discussed with the asset finance company before the terms of the contract are agreed. Similarly to an operating lease, the responsibility of the asset’s management can either fall with the lessor or the lessee.

Would you rather hand over the risk of ownership?

If you would rather eliminate the risk of ownership, a contract hire agreement may be a good option for you. Although the risk of ownership can be split between the lessor and lessee, most contract hire agreements include a maintenance package in order to remove the risk of incurring a charge at the end of the agreement. This can happen if you have not adhered to the maintenance standards initially laid out by the terms of your agreement.

Contract Purchase

Do you need the security of regular payments and fixed interest rates?

A contract purchase agreement will not provide you with fixed interest rates, but it will offer regular payment instalments, and the flexibility of potentially reducing or extending the length of your contract.

Would you rather own the asset at the end of your contract?

Then a contract purchase could work for you. With this asset finance option, you will be able to either return the asset at the end of your contract, or pay a balloon payment at the end of the agreement in order to own the asset outright.

Would you rather be responsible for the asset’s management and servicing?

With a contract purchase either the lessor or the lessee can be responsible for the asset’s management.

Would you rather hand over the risk of ownership?

With contract purchase the asset risk is split between the lessor and the lessee, leaving the lessor with the risk of the depreciating residual value, and the lessee responsible for maintaining the asset to a pre-agreed standard.

We hope our comparative guide has helped you decide on the right asset finance option for your business. If you need further guidance, contact our team of experts at Anglo Scottish for further advice.

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