- Operating lease Good for specialised and higher value assets. The financier owns the asset and takes the risk of it losing value. You get to use it for as long as you wish. Advantages: We build in a residual value that reduces your monthly payments. This type of commercial leasing instantly aids your cash flow and makes 'off-balance sheet' funding possible. You can match your fixed rentals to your income – particularly helpful for seasonal businesses. VAT is reclaimable on the rentals while payments can normally be offset against taxable profit.*
- Hire or lease purchase A simple repayment facility where you eventually own the asset at the end of the term of the agreement. Advantages: Great flexibility. It can be structured in various ways with, for example, a flexible deposit, fixed payments and perhaps a balloon final lump sum. Normally you can claim writing-down allowances and perhaps capital grants. Repayment interest may be offset against profit and VAT is usually reclaimable.*
- Finance Lease The benefits of ownership through spread fixed rentals without the drawbacks of asset disposal at the end of the period. Advantages: Low up-front costs and flexible repayments that can be tailored to match your cash flow. At the end of this commercial leasing agreement, the relevant assets are sold and you receive the major share of the proceeds. As the asset owner, we claim the available writing-down allowances and reflect this in your monthly payments. VAT is payable on the rentals, not the purchase price while payments can normally be offset against taxable profit.*
Simplicity and flexibility
4 mins read
Many UK manufacturers complain that a shortage of capital funding is constraining their ability to expand, to innovate and ultimately to play their part in creating a sustainable recovery. In this first part of a three-part series, Alexander Baldock, managing director of Lombard, gives a jargon-free guide to solving their problems through the flexible, accessible route of asset finance
Although some of our leasing schemes are outlined here, I believe fine detail should not be the first point of reference for any manufacturer looking for capital investment. Clearly, the products vary widely but the important point is the consistent thread of customer benefit running through them. Lombard exists to get British business the kit it needs to prosper and to drive the economic recovery. And we can find any number of ways to do that across all asset classes for any size of business anywhere in the UK.
Primarily what we offer is flexibility, tailored around the needs of the business and the quality of the assets. In essence, it makes this type of finance a highly attractive alternative to using up finite bank facilities or scarce cash reserves. In practice, it's our knowledge of the value of capital assets that makes us different, coupled with a healthy appetite to lend. We aim to lend over £5bn this year and not just on our traditional area of wheeled assets but on less publicised areas like technology and, in particular, plant and machinery.
Let's look at some of the ways this type of support dovetails neatly into individual business models. Take, for example, the situation where a manufacturer has an asset on the balance sheet but would prefer to free up cash while retaining its use. A leaseback arrangement could bring the best of both worlds. Operating leases are particularly useful for complex, bespoke, high-value equipment where customers are likely, firstly, to be uncertain about how long they will use it and, secondly, how much it will eventually be worth. Typically, Lombard takes the risk of how much it will realise at the end of its life. It's highly beneficial for the customer because, as well as potential tax and balance sheets advantages, they only pay for the asset during its useful life. If they want to keep it for longer than the original term, they can usually negotiate an extension. If they don't, we take it back.
We are comfortable doing this because we understand the secondary market which is often global. For instance, we have just finished financing a large bottling plant. On the surface, there were risks: the resale value outside that plant is likely to be minimal because it's bespoke and ripping it out would destroy it. So, in a distress situation, you couldn't usefully deploy that kit. We, however, lent a considerable sum because, under those circumstances, we could see somebody else would want to own that brand and would want to bottle it there.
When customers come to us for a leasing solution, they are generally after lower costs, lower risks, and lower hassle. We provide all of that; everything from helping them source the asset to disposing of it at the end of its life. Our Global Transaction Services (GTS) is a good example of how we try to look at customers' needs through their perspective, not ours. UK manufacturers often need to import new plant and machinery. If you want to finance it, today you may need to find at least two separate types of facilities: a trade finance loan and an asset lending deal afterwards. Our GTS joins the two together for you – a single facility from the moment you start thinking about the acquisition to the time you dispose of it. There will be a lot more emphasis on this in the coming months: it is a more convenient and potentially better value solution for the customer – and obviously it's good for us, too.
I'll talk about the bread and butter issues like the application process and security in the next issue. In essence, however, I have one over-riding piece of advice. Come and talk to us early. The sooner in the process of getting a new asset or refinancing an existing asset that you engage with us, the more likely it is that there will be a happy outcome all round. It sounds simple and it is.
For more information, go to www.lombard.co.uk.
Back to basics: types of asset finance
These are typically used for HGVs, plant and machinery, materials handling equipment, IT and communications technology.
