There is no simple answer to this question, as firstly it depends on the type of asset finance you choose, and here at Funding Bay, we regularly get enquiries from businesses who are interested in at least four types of asset finance: hire purchase, asset leasing, asset re-finance and sale and leaseback.
Secondly, with some types of asset finance, you might have to give up ownership, either permanently or temporarily.
So, here we will look at how the four main types of asset finance, and the ownership position associated with each of them.
Hire purchase
- Do you own the asset before the agreement commences? NO
- Do you own the asset while the agreement is in force? NO
- Do you own the asset after the agreement ends? YES
As the presence of the word ‘purchase’ in the name of this product suggests, you are indeed buying an asset here. However, because this type of finance is typically used where a business wants to buy an asset but can’t afford it via a one-off payment.
Because you aren’t paying the full purchase price upfront, the lender will buy the asset on your behalf, and ask you to pay an initial deposit, which might typically be 10% of the purchase price.
Then, during the term of the agreement, which might last for between one and seven years, you would need to ‘hire’ the asset from the lender in order to use it. You would repay the full purchase price, plus interest, in fixed monthly instalments throughout the term.
You become the legal owner at the end of this term once all repayments have been made.
Asset leasing
- Do you own the asset before the agreement commences? NO
- Do you own the asset while the agreement is in force? NO
- Do you own the asset after the agreement ends? NO (with most agreements)
Asset leasing is usually nothing more than a method of renting an asset for a limited period, which might be anything up to five years. In return for having full and exclusive use of the asset, you make regular rental payments to the provider.
With most asset leasing agreements, you would return the asset to the provider at the end of the term. Some agreements might, however, include an option for you to buy the asset.
Asset re-finance
- Do you own the asset before the agreement commences? YES
- Do you own the asset while the agreement is in force? NO
- Do you own the asset after the agreement ends? YES
With asset re-finance, the finance provider lends you a sum of money, using an asset you already own as its security. You can then use this loan amount for any business purpose.
You have to surrender ownership of the asset to the lender for the duration of the agreement, which might be for anything up to 10 years. During this time, you need to repay the amount borrowed, plus interest, in regular instalments. If you make all of the scheduled repayments, then you will regain ownership of the asset at the end of the term.
Sale and leaseback
- Do you own the asset before the agreement commences? YES
- Do you own the asset while the agreement is in force? NO
- Do you own the asset after the agreement ends? NO
A sale and leaseback arrangement involves the permanent sale of one of your business assets. You can use the sale proceeds for any business purpose. You would then lease the asset back from the finance provider for an extended period and make regular rental payments to the provider. This would allow you to continue to use the asset in much the same way you did as when you owned it.
A final word of warning. All asset finance agreements involve the asset being used as security. This means that, should you fail to maintain repayments, the finance provider can re-possess the asset, which would certainly mean that you won’t own the asset at any point in the future, nor would you be able to use it on a rental basis either.
If you’re interested to boost your business through asset finance, contact Funding Bay.
Check out our Asset Finance Calculator.
