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Asset Finance – An expert opinion

Asset Finance – An expert opinion

 The waste industry is estimated to be worth somewhere in the region of £8 billion and is steadily growing year-on-  year. With the ever-increasing demand for new waste machinery and equipment, waste management business  owners are looking towards asset finance as a cost-effective solution.

Skip Hire Magazine spoke to Andy Sagar, Managing Director of the construction division at Close Brothers Asset  Finance, specialist providers of finance for the waste industry, to find out the benefits of asset finance, the different  types of finance options and what business owners should look for when approaching a provider.

 What are the benefits of asset finance?

For many waste management owners, finance can be a constant worry. Purchasing large machinery can be a huge  expense that could impact other areas of your business, such as overheads and salaries.

Sagar says, “One of the most obvious benefits of using asset finance is that it allows a business to purchase new machinery or vehicles with a minimum capital outlay.

“New machinery often means greater efficiency or greater output, thus helping a business expand or meet increased demand for its services without putting huge pressure on cash flow.

“Another key benefit is that asset finance is often much more flexible than a standard bank loan or overdraft.”

How is the finance repaid?

Asset finance is repaid in smaller amounts over a period of time.

Sagar explains, “The repayments are spread over an agreed term, and can be structured to correlate with the income generated by the asset – so if your business is seasonal, for example, that can be taken into account when agreeing the repayment terms.

“Asset finance also allows certain tax benefits – capital allowances are available on a variety of equipment meaning businesses can offset some of the payments made.”

What should you look for when approaching an asset finance provider?

When considering using an asset finance company, look into the company’s background.

Sagar says, “One of the most important things you need to look at is the provider’s experience in the waste management industry – your asset finance provider must have a good working knowledge of the typical assets you’re using.

“We use our understanding of the industry to create bespoke finance packages that are relevant to the asset and business in question – our experience also allows us to underwrite deals that banks wouldn’t look at.”

What are the different types of finance?

 

There are different types of asset finance. The options can vary, depending on the specific needs of the business.

Sagar explains, “Hire purchase gives companies eventual ownership of an asset at the end of the repayment term allowing them to spread the cost of their equipment, plant or machinery through manageable instalments, ensuring healthy cash flow is maintained.

“Leasing allows a business to spread the VAT payment over the term of the agreement with rentals attracting VAT as they fall due. After the primary lease period firms either arrange for the sale of the asset receiving a refund against rentals paid for an agreed percentage of the sales proceeds, or enter into a new term paying secondary period annual rentals.

“Sale and HP Back, or asset refinance, releases the value in existing unencumbered assets. In essence the lender buys the asset from the business at a percentage of its value and re-finances it back over an agreed period. So the company still uses the asset only now it is able to inject part of its value as cash directly into its business.”

How does asset finance free up cash flow?

Asset finance can be a practical option for waste businesses who need large machinery and equipment. It allows for more financial freedom for other aspect of the business.

Sagar says, “In a nutshell, asset finance is an extremely sustainable form of funding for large business purchases.

“Few businesses have the cash resources to buy a large asset outright, and asset finance offers a flexible and cost effective way to purchase the plant, machinery and equipment needed to help firms meet their growth aspirations.

“We see it as a way of making the most of what’s already on your balance sheet – there’s often a lot of value in existing unencumbered assets that can be unlocked via asset finance to provide a cash injection.  It enables the purchase of assets of all sizes, which might not otherwise be possible.”

What are the risks of asset finance?

Like the majority of other financial services, the asset finance industry can be vulnerable to rogue lenders. There are a number of organisations and governing bodies increasingly scrutinising this, with a view to bringing about change and reform to protect businesses.

Governing bodies for the asset finance industry include:

  • The FLA (Finance and Leasing Association)
  • The FCA (Finance and Conduct Authority)

*The majority of finance business are ethical. Those that are, are invited to list their company voluntarily on the Financial Services Register. The register is a public record of firms regulated by the FCA, which have been approved to trade. This provides peace of mind and protection to borrowers.

Doing your groundwork is essential, explains Sagar, “My advice is to spend time researching and understanding your options – companies should look to asset finance providers that they can trust and who they can seek support and advice from, as well as appropriate asset finance options throughout the lifecycle of their business.”

How to access asset finance

  • Have an understanding of what it is
  • Take time to find out what it entails and what is expected of you as a borrower
  • Make sure you can afford the repayments
  • Don’t rush into big decisions without taking proper advice from industry experts
  • Don’t get confused with all the financial jargon. A trustworthy lender will explain everything to you in layman’s terms and understand that you may not be aware of all the legalities and small print

How to choose an asset finance provider

  • Always do your research and make sure you approach a reputable company
  • Always choose a provider that is endorsed by a governing or trade body
  • Check they are on the Financial Service Register
  • Make sure they have experience in providing asset finance to waste businesses

 

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