There are numerous ways that you can fund your business. And in this series of blogs, I’m looking at one of the options namely, Asset Finance.
I started the series by providing a general introduction to asset finance and looked at the different types of assets that can be funded and the different types of asset finance options that are available.
And over the next few weeks, I’m looking at each of the different asset finance options in turn, examining how they work in detail and discussing the ‘pros and cons’ of each option.
This week we continue the series by looking at contract purchase.
Contract Purchase – What is it?
Contract purchase is a type of finance agreement that is most commonly used for acquiring vehicles within the business.
The business will choose a new vehicle and pay a deposit for it upfront. The business then pays the finance company a fixed amount each month during the period of the agreement.
At the end of the agreement, the business owner then has the option of buying the vehicle outright at a pre-agreed and pre-determined amount. Alternatively, there is also the option of returning the vehicle at the end of the contract at which point the usual scenario is that the business owner takes out a new contract purchase on a new and updated vehicle. This has the benefit of ensuring the business always has the latest vehicles available.
The finance element of the rental payments is not subject to VAT, which is beneficial to organisations that are unable to recover VAT.
Contract purchase works particularly well for business owners and businesses which need to regularly update their vehicle fleet, be it cars, vans or lorries. The benefit of contract purchase is that updating the vehicle fleet can be done without the business owner carrying the risk of the vehicles depreciating significantly in value.
Benefits of contract purchase:
- Fixed monthly payments which means accurate budgeting and planning of cash flow
- Very flexible terms, providing a range of options including the length of the term and the annual mileage allowance
- Flexible maintenance options providing a range of service and maintenance options for the vehicle
- The end value of the vehicle is fixed at the commencement of the agreement, meaning you know the cost should you wish to acquire the vehicle when the contract ends
- The option of owning the asset or vehicle at the end of the contract
- A good option for businesses with high-value vehicles
We’ll continue the asset finance series next week by taking a look at a contract hire as a potential funding option.
In the meantime, if you are looking to purchase an asset for your business, or you would like to release funds into your business by utilising an asset you already own, then why not talk to an expert. Email us at email@example.com or give us a call on 020 8949 2122 and let’s see how we can help.