Portman Business Finance Guide
When approaching finance as a new business, it can be filled with many unfamiliar terms which can make it rather intimidating. So, we’ve made a glossary of some common terms you might come across in the process of securing the funds you need, allowing you to feel more confident in the financial decisions you’re making for your business.
When the leased asset(s) have been received in good condition, an acceptance certificate is signed by the lessee confirming that the equipment is fit for purpose, usually marking the start of the lease agreement. In doing this, the lessee’s risk of paying for equipment that is damaged, faulty or has not been delivered is minimised, and the lessor’s risk of paying a fraudulent supplier or dealing with customer complaints, is also reduced.
A type of item that can be leased, funders will generally categorise assets as either a ‘Hard’ or ‘Soft’ asset which reflects the security that is intrinsically found in the asset and usually affects the pricing of the agreement (hard assets usually have better rates to reflect the reduced risk to the lessor as hard assets typically retain value). Assets can also be both tangible such as plant or equipment or intangible like software.
Asset finance can provide significant cash flow benefits to customers looking to purchase equipment for their businesses. The customer would typically obtain the equipment through a hire purchase or equipment leasing agreement whereby the lender or hirer takes ownership of the equipment for the duration of the term of the agreement and the customer pays an agreed sum to the lender or hirer for use of the assets.
Spread the cost of you next equipment or machinery purchase with asset finance from Portman.
A statement that discloses the financial position of a business, showing the firm’s assets, liabilities and shareholders’ funds.
Capital expenditure is money spent by businesses on acquiring or maintaining their fixed assets. When a company invests in fixed assets. Leasing can a beneficial way of securing these assets without paying up-front capital expenditure, especially for capital-intensive businesses, such as construction or manufacturing businesses, that require large capital assets for proper business function.
A percentage of taxable profits paid as tax based on accounting profit with certain adjustments. Tax allowances may be claimed in certain circumstances.
Understand more about corporation tax rules on the government website.
To spread the cost of your own bill, consider a corporation tax loan form Portman.
COUNTY COURT JUDGEMENT (CCJ)
A court ruling in favour of a legal entity claiming that they haven’t been paid monies owed to them, applying to both businesses and individuals. Once the CCJ has been issued and noted in the public domain, it will be used by credit reference agencies as a means to reassess the creditworthiness of that person/business – resulting in a negative impact.
A payment made at the start of a finance agreement which has the effect of reducing the monthly payments throughout the term. Referred to on a hire agreement as an ‘initial payment’. Its purpose is to reduce the risk for the lessor caused by any loss in value for assets as soon as they are no longer classed as new.
A regularly scheduled mandate from the lessee, arranged by lessors to collect lease payments direct from the lessee’s bank account.
Where a lease agreement is cancelled by the lessee before the end of the contracted primary or minimum period. Terms of this may vary depending on if the credit agreement is regulated or non-regulated.
Typically assets that meet the DIMS criteria (Durable, Identifiable, Moveable and Saleable) designed to be held for the longer term and hold onto their value which offer the Lender or Lessor a greater deal of security from the finance agreement.
KNOW YOUR CUSTOMER (KYC)
A mandatory process of identifying and verifying the identity of a customer before entering into any finance agreement. This helps prevent finance from being used to facilitate crime and terrorism. Lessors, brokers and introducers will check they are dealing with a genuine business before approving finance. More information on KYC requirements and other anti-money laundering legislation can be found on the Government website.
An agreement between the lessor and the landlord of the lessee’s building. It gives the lessor the right to enter the premises to inspect or remove their assets during the period of the finance agreement.
An agreement where the asset owner (referred to as the ‘lessor’) allows use of an asset to another party (the ‘lessee’) for a certain amount of money. The use of this term indicates that it’s a hire agreement with no guaranteed purchase option at the end of the lease period.
Portman can help arrange equipment leasing finance for your next purchase.
The minimum amount of time that the lessee agrees to lease an asset. It can be referred to as the non-cancellable period or primary lease term.
LEASE WITH SECONDARY RENTAL PERIOD
A lease agreement where the lessee can continue to rent the equipment at the end of the original term. This can continue for a long as the customer requires the use of the equipment.
The party (an individual or company) that becomes a user of an asset owned by another party (the ‘lessor’) through a lease agreement.
The owner of an asset that can be hired through a lease agreement.
MINIMUM LEASE PERIOD
A lease that will continue until it is cancelled after the defined minimum hire period. Also referred to as an open-ended lease, minimum term rental or infinite rental.
It can enable lessors to fund equipment that would have otherwise been declined due to perceived credit appetite risk. If a business or individual is unable to pay the amount due, it becomes the responsibility of the guarantor to clear any fees and maintain future payments.
The pattern of payments over the lease period.
For example, a 3+33 profile means the lessee’s first payment/initial rental will equate to 3 months’ worth of payments, which is then followed by 33 ‘normal’ monthly payments. I.e., if the monthly payments are £200, the initial rental would be £600, followed by 33 months of £200 payments.
SALE AND LEASEBACK
A means of releasing equity through selling assets to a lessor for a lump sum and leases the assets back over time. Sale and HP back options are also available. This form of equipment refinancing is offered through Portman.
Soft assets are generally assets which typically have little or no re-sale value. They may not be designed to be held onto for a long term and can include assets which are intangible, such as software.
When a lease is arranged for assets that require a specific payment structure to the supplier (this could be due to installation and quality control), the agreement may specify that payments are to be released to the supplier in stages following written instruction from the lessee.
Any type of business whose main function is to sell equipment, including resellers and dealers. They can sometimes offer vendor finance to their customers, which can be arranged by manufacturer or distributor schemes, or organised through a broker or with a lessor directly. Other terms include vendor or vendor partner. Portman can offer vendor finance for providers of equipment & services.
The non-cancellable agreed period of a finance agreement.
The decision process of whether a prospective customer should be offered finance. This is done through a risk assessment and credit check to determine the affordability of the proposed finance for the customer.
A lease agreement used by brokers or equipment suppliers which typically has the branding of the broker or supplier. This document will be acceptable by several lessors and can provide a simpler process for customers where a broker or supplier has a number of funders on their panel.
VALUE ADDED TAX (VAT)
A form of consumption tax on a product. For leases without a bargain purchase option, VAT on an asset is charged on the rental payments. For hire purchase agreements, VAT is paid upfront.
Find out more about the UK Government’s VAT rules.
Spread the costs of your VAT bill with a tax loan from Portman.
Call now to speak to one of our experts if you have any questions on 01604 761276 or enquire online if you’re ready to invest in your business.
Enquire online if you’re ready to invest in your business
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