Financial Services

Through our finance partners we can………

Use of financing can match payment to business income, thereby providing an alternative to locking up cash, which may restrict additional opportunities within the business. Finance options fall into two broad categories:

• Lease (Hire)

• Purchase

The following illustrations outline the main considerations for the popular options.

(a) OPERATING LEASE

Structure - The manufacturer/dealer sets a future value for the machine based on its expected resale value at the end of the contract, when it is returned to them. This figure is excluded from the balance on which the rentals are calculated, which means the payments are usual lower than for purchase arrangements. The rentals are simply charged to the profit and loss account as operating costs. Title (legal ownership) will not pass to the lessee (hirer) at the end of the contract.

Benefits

• Fixed lower operating costs

• Off balance sheet borrowing

• Hire only, no risk of depreciation or disposal concerns

(b) HIRE PURCHASE

Structure – The balance to be financed is repaid by regular instalments, at the end of the payment period ownership passes to the club. The asset is capitalised and the instalments shown as a liability. Depreciation and the interest element are assigned to the profit and loss account.

Benefits
• Ownership
• Appears as a balance sheet asset
• On resale you receive the proceeds
• Simple finance structure


(c) FINANCE LEASE

Structure - Rentals are shown as a liability in the Balance Sheet and depreciation and rental interest are assigned to the Profit & Loss account. A finance lease is divided into two periods. The Primary period in which the rentals repay the balance financed and interest- any cash deposit is treated as an initial rental, as is the value of any part exchange. The Secondary period commences one month after the end of the Primary period. If the Lessee (Hirer) wishes to keep the machine then an annual Secondary Period Rental (SPR) is paid in advance for each year that the machine is retained. On disposal the Lessee participates in the sale proceeds by way of a rebate of rentals and can apply these to a new machine, just like a part exchange.

Benefits
• SPR- continued use of machine for minimal rental
• Finance Lease – asset can appear on Balance Sheet
• Rebate of rentals on disposal repays careful use

We will be happy to arrange to discuss the various finance options available in more detail.

Such discussions can include bespoke agreements, which allow
for deferral of initial payments to coincide with cash flow projections, use of part exchange values towards finance deposit and other practical options.

NB – All finance agreements subject to acceptance and conditions may apply

John Shaw (Machinery) Limited is a licensed credit broker