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Product Guide
Hire Purchase Finance Lease Operating Lease Commercial Loan Deferred Payment (Payment Holiday) Seasonal Payments Step Payments Upgrade Lease 'Click' Lease Hire Purchase This is the simplest form of asset finance, where the money is borrowed by the customer (the school) and is treated as borrowing for accounting purposes. The assest purchased is owned by the Finance Company during the term of the loan, as security. The money borrowed, together with a charge for interest, is repaid, normally, in fixed and equal monthly instalment over a fixed term of years. On completion of payments the ownership or title to the asset is transferred to the customer. VAT is typically paid in full up-front, but can usually be recovered and repaid to the customer under VAT rules. For business purposes. the assets are written down as if owned and tax relief is allowed for depreciation (capital allowances) and the interest. Finance Lease This is simply a rental contract where the cost of the items bought, together with a charge for interest, are repaid over an agreed primary period (normally anything between 2 - 10 years) or in line with their anticipated life. On conclusion of the primary rental period the customer can simply return the gods and have no further liability for payment, or continue with the rental agreement on a nominal peppercorn rental. The items are never the legal property of the renter, although it is possible to purchase the items at the end of the lease term often for a nominal payment. Re-payments are claculated on the purchase price excluding any VAT but VAT is payable on monthly rentals, and may be recoverable if the business is VAT registered. For accounting purposes, rentals are fully-allowable for tax. Operating Lease A purely rental contract where the customer pays for the usage of the equipment for a fixed period. Rentals are lower than in a finance lease, reflecting the residual value of the equipment (future value at the end of the rental contract). On conclusion of the primary term, the customer can either return the equipment or contine to make rental payments. All payments have VAT added which may be recoverable if the business is VAT registered. As a pure rental agreement, there is no borrowing and no asset, but there is the liability to coninue making the payments during the primary rental period. Commercial Loan A straight forward loan agreement between the lender and the borrower where a fixed sum is borrowed (often for an intangible asset) over a fixed period. A loan need not refer to a specific purchase. Deferred Payment (Payment Holiday) Where equipment is purchased and installed but payments do not commence until a pre-determined time in the future. This time can normally be agreed to concide with a key date, e.g. fiscal or financial year, or commencement of a specific contract. Seasonal Payments Repayments can be re-agreed to vary by season in line with specific business trends. For example, a language school might want higher payments in the summer season than during the winter months. Step Payments These are designed for certain types of equipment. It might be appropriate for repayments to gradually increase throughout the lease term. This could be particularly appropriate where perhaps the usage fo some newly developed equipment will start off at a low level and grow gradually with the income stream (sales) reflecting a growth pattern based on equipment use. Upgrade Lease On high-tech equipment it may be necessary to upgrade once or more during the primary lease term. An upgrade lease allows pre-determined upgrade amounts throught the lease term. "Click" Lease Working with suppliers, a "click" lease allows the customer to pay for goods purely on utilisation. This is particularly valuable where services are directly chargeable, e.g. in healthcare, X-Ray machines might often be funded on "click" basis. |