Mike Hartley, managing director at Praetura Asset Finance, discusses the asset finance solutions that can help plant specialists and contractors enhance their fleet without conventional loans or venture capital.
The good news is that the construction sector is recovering. The even better news is that it is doing so at an escalating pace; but there’s a catch. In order to capitalise on the positive upturn in the sector’s fortunes, plant specialists and contractors must have the assets available to drive growth and win new contracts. To acquire those assets, however, they need to generate revenue for capital investment.
It’s a quandary that sends many to banks and traditional lenders for increased overdrafts or loans and, unfortunately, the recovery in lending to SMEs is not keeping pace with the recovery in the construction sector.
Funding New Assets
So how can companies like yours access the capital they need to invest in new equipment without turning to the bank for finance or seeking venture capital funding? Asset finance can often provide the key to unlocking some of the capital tied up within your business, enabling you to purchase new equipment, invest in growth or even address financial issues within the organisation.
It can work in a number of ways, depending on the nature of your assets, your business plan and your goals. However you should look for an asset finance provider that will not only make funding available for you but will also help to identify the right type of finance agreement to fit your situation.
A hire purchase approach enables acquisition of costly equipment through an instalment plan. Just like buying a car on finance, this type of funding agreement means that the asset remains the property of the asset finance specialist until a final payment has been made, which includes a one-off option-to-purchase fee, transferring ownership to the purchaser.
One of the major benefits of this approach is that the amount and date of repayments is fixed, aiding financial management. Moreover, they are not subject to VAT, with any other charges often offset against profits for taxation.
Leasing is also an attractive asset finance option that enables companies to manage fixed costs and benefit from full use of new equipment to grow their business. Under this type of agreement, however, the new equipment remains the property of the asset finance company. When that term comes to an end, you can choose whether to continue use under the same agreement or sell the item to a third party, in which case you’ll receive up to 95% of the sale price. This type of plan can be very flexible for a company that is unsure of its long-term strategy. Another major benefit is that once the deposit is sourced, the VAT payment is made on the rentals, which can help to boost cash flow.
The third option is refinancing, which is a practical and affordable way to utilise the value in existing assets. This approach allows you to raise funds based on your assets’ residual value and ownership of those assets is transferred to the finance provider for the duration of the agreement. The company can continue to use the equipment as before, however, enabling you to free up capital from the business for a variety of uses including implementing expansion plans or even a management buy-out or buy-in.
Refinancing can be the ideal option for releasing value from a business quickly in order to fund an immediate spending requirement and it’s important to look for an asset finance company that will take a flexible, ‘can do’ approach. For example, Praetura Asset Finance recently helped a construction company that was facing a winding up petition due to more than £60K in HMRC arrears. The company also needed £140K in additional funds to tidy up its debtor book and fund future growth.
Despite the four-day deadline set by HMRC and the fact that all the company’s assets were still encumbered by finance, Praetura Asset Finance was able to provide a £270k finance facility from day one, including £70k to settle existing finance. Consolidating the company’s finance in this way reduced the repayments by £1k per month and following inspection of eight assets across four locations on day two of the relationship, the deal was signed and funds made available on day three.
The ability to make capital available urgently to the company in order to settle arears and get back on track financially demonstrates just one of the ways in which asset finance can help. However, it illustrates how quickly and cost-effectively asset finance can be put in place, whether a business is making positive choices to expand or firefighting to survive.