20 Jan 11 Understanding Asset Finance
Asset finance is a general term that is used in the financial world to encapsulate different types of finance packages. Some finance types include hire purchases, lease purchases, finance leases and operating leases, all of which should be understood on a basic level, especially if you are a business owner needing to buy equipment for your company.
Hire Purchase Asset Finance
Hire purchases are the most commonly referred to form of asset purchases and allow a business owner to take out a contract, pay a percentage of the deposit and then a monthly “hire fee” to use the item. Once the full purchase price – plus interest – has been fully repaid, the business owner can choose to buy the item at a predetermined fee, or return the item to the lender.
Lease Purchases in Asset Finance
Lease purchases are extremely similar to hire purchase, with the difference between these two types of asset finance being you make multiple repayments as a deposit rather than the upfront percentage that you would for a hire purchase. The remaining balance of the asset – plus interest – is then paid in a number of instalments which are defined by the contract.
A Financial Lease
In a financial lease, the asset is owned by the finance company. The finance company then rents the asset to you for a stated amount of time. At any time, the finance company can write down the allowances and let you use them as well.
With a financial lease, you are not able to sell the asset as it does not belong to you. Nonetheless, the finance company can allow you to sell the asset on their behalf in which you will be entitled to a share of the proceeds from the sale of the asset. Your share can be negotiated to as high as 99 per cent of the sale proceeds.
Using an Operating Lease
An operating lease is extremely similar to the financial lease so you should compare these two different finance assets to see which one is more desirable for your needs. The difference between these two is that with an operating lease during the primary period, you are not paying for nearly all of the hire charges and capital costs as you would with the finance lease. Operating leases hardly ever have a second rental period.
Discuss your asset finance options with your accountant, financial advisor or banking expert. By doing so, you will be able to ask specific questions relating to your circumstances and fully understand how each type of asset finance will impact you and your business.
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Tags: Finance, Understanding
19 Dec 10 Understanding UK Bridging Finance
Bridging Finance Basics
Bridging finance, sometimes referred to as high speed property finance, is a ‘financial tool’ used to raise funds against the value of a property. These funds can be used for any legal purpose, maybe to purchase an other property or to raise capital for some other reason. Bridging finance is primarily for short term purposes – typically one or two months but can be for up to two years. Literally any residential or commercial property which has provable value can be used to secure a bridging loan.
Some of the main purposes to which bridging loans can be put:
Purchase of a residential or commercial property before the sale (or re-mortgage) of an existing property.
Purchase of a property where speed is essential to clinch the deal
Funding can be arranged for property in need of substantial repair or refurbishment pending a long term mortgage.
To avoid bankruptcy of other financial crisis by releasing the equity in a property.
Bridging loans can either be based on the “restricted sale value” of a property or the Open Market Value (OMV). The difference is simply down to the preference of an individual lender, a specialist commercial broker will be well aware of the difference and should ensure that this is made clear to the client.
Because the loan can be based on the Open Market Value of the property it is not at all unusual to see loans being arranged in excess of 100% of the purchase price. This is a major attraction to most property investors who are able to negotiate purchases well below market value. In the event that additional funds are required additional security can be used to “top-up” the loan.
How does it work?
A professionally prepared valuation report is the back-bone of a bridging loan. Most bridging loan applications undergo relatively few background checks on the client’s ability to repay the loan, therefore the lender has to rely on the valuation for their security. Most bridging lenders will have a preferred list of surveyors so it is best to leave arranging the valuation to your broker.
Whilst waiting for the valuation report the lender will usually carry out their statutory checks on the applicant and be ready to issue the formal offer documents or facility letter when the valuation has been completed.
The exact process will vary from lender to lender, but in most cases once the offer has been issued and the valuation report checked the case is handed over to the solicitors who will then conclude the matter.
It is vital that you obtain independent legal advice when arranging bridging finance. Your choice of solicitor will have considerable influence on how quickly the process can be completed. It is worth checking you local phone book for firms of solicitors who have a commercial department, these solicitors are mostly likely to have carried out this type of high speed transaction before. Most solicitors expect to take eight weeks or more to conclude property transactions, bridging finance is usually completed within two or three days of a satisfactory valuation report being received. (Obviously the author is not aiming any criticism at solicitors!)
Tags: bridging, Finance, Understanding
