Management Guide to Asset Finance. A simple guide to help you select the most appropriate asset finance for your business.

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1 Management Guide to Asset Finance A simple guide to help you select the most appropriate asset finance for your business.

2 CONTENTS: Introduction 0.2 What s the best option for you? 0.3 Get the right solutions at the right price 0.4 Purchase outright, borrow from the bank or use asset finance? 0.5 Capital allowances encouraging investment in your business 0.9 Business Benefits 0.10 Passenger Cars and Commercial Vehicles 0.12 Technology 0.15 Plant & Machinery 0.18 Frequently Asked Questions 0.19 Key facts about asset finance and capital investment 0.21 Helping organisations to grow 0.23 This publication is for general guidance only. Information is subject to change without notice. All statements concerning taxation are based on our understanding of current legislation. Levels and bases of taxation can change at any time. The contents of this guide do not constitute legal, tax, financial planning or any other advice. Opinions expressed in this guide are not necessarily those of Capitas Finance Ltd. All information is believed to be correct at time of writing. Please contact Capitas Finance on for latest information on products and services. 0.1 Tel:

3 INTRODUCTION: The majority of companies have to seek financial assistance to help them grow. Historically, the first route for raising funds was the bank, but today organisations understand the importance of diversifying their funding lines and want a wider range of financing providers and options. There is a growing awareness that paying cash to purchase business assets may not be the best option. Alternatives, including asset finance, can offer many advantages. Using all your available assets in a flexible and imaginative way makes it possible to fund your business objectives. It can also help solve the problems posed by the need to maintain, replace or update depreciating assets in a fast changing and highly competitive business environment. Asset finance can offer tangible benefits to organisations of every size and structure looking for improved solutions to fulfil their borrowing needs: Assets are financed from revenue and paid for as you put them to work Rates can be as competitive or even better than bank rates Preserves working capital and does not tie up stock funding You benefit from the full use of the asset without having to pay up front Choice of fixed and variable rates Depending on your situation you may benefit from tax advantages Leasing can involve low initial outlay Provides a source of flexible credit No impact on traditional business banking lines and overdraft facilities. This management guide has been designed to help make asset finance easier to understand. We hope you find it both interesting and informative. 0.2 Tel:

4 WHAT S THE BEST OPTION FOR YOU? Distribution is an important part of my business. How can I afford a fleet of new commercial vehicles without using my overdraft facility? We ve won a lucrative contract but I m concerned about the additional burden this will place on working capital. Do you have any ideas? The solution: Choose a total solution provider that offers advice, expertise and specialist knowledge you require to help you grow your business. Your business is expanding and you ve identified a number of key investments that need to be made to sustain future growth. It could be an upgrade of your IT system, a fleet of company cars, or new plant. To help expand my business requires a new IT system. Who has the expertise to finance all aspects of the project? You could research a range of technology vendors, talk to some vehicle dealerships, or find out which heavy equipment manufacturers can best support your requirements. However, all this costs time and money and ties up valuable people resource something many expanding businesses don t have. And when you want to arrange finance, who do you talk to in the first instance? Do you apply for finance online, talk to a finance house call centre, or find a partner who can understand your business and provide a fit for purpose product, when you want it? This guide will explain: The main issues in relation to purchasing, bank borrowing and asset finance How the facilities differ, and what this means to you in real terms Practical advice on owning and managing assets How to find out more. 0.3 Tel:

5 GET THE RIGHT SOLUTIONS AT THE RIGHT PRICE Acquiring and financing business assets can be a huge challenge. You will need to carefully plan how you will source the equipment, select the right supplier, fund it, and manage the assets effectively. Cash is the lifeblood of any business. Purchasing outright may mean you tie up valuable cash resources that could be used to drive other areas of your business operation where you make a greater return on capital employed. Finance is available in many forms, and by taking time to review the options available, you can make a more informed choice. Financial planning is a critical success factor. Business leaders need to have access to the most effective solutions when new assets are required to drive the organisation forward. Finance is available in many forms, and by taking time to review the options available, you can make a more informed choice. The issues: Finding the most appropriate financial products that can help you balance the growth of your business with the demands of working capital, changing market conditions and unpredictable events that can happen in a fast moving business environment. The solution: Consider asset finance a flexible finance option that can help grow your business. Naturally, you have to pay for the facility and associated benefits, but choosing the right deal can provide you with real value over the short and long term. 0.4 Tel:

6 PURCHASE OUTRIGHT, BORROW FROM THE BANK OR USE ASSET FINANCE? This will depend on your circumstances, which is why it s important to work with a finance professional that has the expertise to offer you advice on the following: Your overall attitude to owning assets outright, instead of leasing them How this affects your cash flow and working capital requirements Available tax allowances VAT implications PURCHASE OUTRIGHT: WHAT IS IT SUITABLE FOR? Any type of business. WHAT DOES IT INVOLVE? You purchase using cash and take ownership of the asset immediately. ARE THERE ANY TAX ADVANTAGES? On the basis your company owns the asset, you can claim capital allowances. The disadvantages of cash purchase are: you tie up valuable cash resource, you own an asset that more than likely will depreciate over time, you will need to maintain and insure it while you use it and dispose of it at the end of its useful working life. Many companies feel that paying cash outright for capital assets places a significant drain on their company's working capital. It makes sense to ease your cash flow through regular payments over an agreed period of time. 0.5 Tel:

7 BANK BORROWING: WHAT IS IT SUITABLE FOR? Any form of business asset, including land and property WHAT DOES IT INVOLVE? You will make regular payments on a loan or cover the cost through normal cash flow if it is paid for from a current account. You will own the asset in full from day one. HOW DOES IT WORK? The cost of the asset is spread over an agreed term. The repayment schedule will depend on the amount of money borrowed, loan duration and the rate of interest. You may be asked to make some contribution towards the purchase price. ARE THERE ANY TAX ADVANTAGES? From the commencement of the agreement, your business is treated as the owner of the equipment, which means you can claim capital allowances. The interest element is 100% tax allowable. The disadvantages of bank borrowing are; the bank is likely to want additional security from the company or directors in support of the advance. Specific covenants may also be requested. In addition, bank facilities, such as overdrafts, are often repayable on demand. 0.6 Tel:

8 ASSET FINANCE Hire Purchase: WHAT IS IT SUITABLE FOR? Tangible business assets that have a medium to long life. It makes sense to ease your cash flow through regular payments over an agreed period of time. WHAT DOES IT INVOLVE? You will make regular periodic payments over a fixed duration and eventually take ownership of the asset in full. HOW DOES IT WORK? ARE THERE ANY TAX ADVANTAGES? Hire purchase enables you to eventually secure ownership of the new asset. The cost of the asset is spread over an agreed term. Payments will be linked to the useful working life of the asset and can be customised to suit particular business needs e.g. seasonal payments. Most deals are structured with an initial deposit, followed by periodic payments. The finance company will retain title to the asset until it is paid for in full. Hire purchase is a committed facility and not repayable upon demand. From the commencement of the agreement your business is treated as the owner of the equipment, which means you can claim the writing down allowances. The interest element of the repayment can be deducted from taxable profits as a trading expense. 0.7 Tel:

9 ASSET FINANCE continued Leasing: As a first step in the decision process, a leaseversus-buy analysis should be performed to understand the overall financial implications and ensure that these tie into the company s financial and capital management priorities. WHAT IS IT SUITABLE FOR? Leasing can be a good option for funding short to medium life assets which need regularly upgrading e.g., computer systems and software. Alternatively, it is used to finance equipment over a period less than its full working life and which has an established second-hand user market e.g., passenger cars, commercial vehicles and construction equipment. Fundamentally, an equipment lease is a usage WHAT DOES IT INVOLVE? agreement between an equipment owner (the lessor) and you, the user of the equipment (the lessee). With a leasing agreement you pay a pre-agreed rental over a set period. You will never own the asset. However, you have full use of it during the primary rental term. HOW DOES IT WORK? Lease agreements are arranged through independent leasing companies (typically bank based subsidiaries often referred to as third party lessors), captive leasing companies (owned by a manufacturer) and financial intermediaries (providing one or more services). The lessor will acquire the asset on your behalf and rent it to you for use in your business. There are three types of rental facilities: 1. Finance Leasing 2. Operating leasing 3. Contract hire Are there any tax advantages? The leasing company claims the capital allowances and will take this into account when calculating your rental charges. Generally the full cost of contract hire can be treated as a revenue expense and rentals are fully allowable against taxable profit. This is a factor in determining whether you should lease rather than buy. You can re-claim the VAT on lease and contract hire rental repayments. Special rules apply to business vehicles, where the amount you can reclaim is generally 50%. 0.8 Tel:

10 CAPITAL ALLOWANCES: Encouraging investment in your business As a business you can claim tax allowances, called capital allowances, on certain capital expenditure. This means you can deduct a proportion of these costs from your taxable profits and reduce your corporation tax bill. It is critical to select a finance provider that can most effectively respond to the customer s needs, be it asset type, industry sector or a specialised market. Each specific area requires knowledge, experience and innovation i.e. added value. You can claim for commercial vehicles, plant and machinery along with many other expenses including energy saving technology, premises and research and development. The amount of the allowance depends on what you're claiming for. If you're buying equipment, 18 per cent is the standard annual allowance for businesses each year. There is a lower rate for expenditure on features integral to buildings, long life assets and thermal insulation. The annual rate of allowance for it is 8 per cent. In a few cases 100% allowances are available on specific types of efficient equipment in the year you make the purchase; for example, energy saving machinery and low emission vehicles. Note that 'a year' refers to a tax year, not a calendar year. Currently, all businesses have an Annual Investment Allowance (AIA) on the first 250,000 of expenditure on plant and machinery purchased from 01 January 2013 (increased from 25,000). This allows them to write off 100 per cent of the cost of the qualifying plant and machinery, up to a value of 250,000, against their taxable profits in a standard accounting period. This measure is designed to stimulate growth in the economy by providing an additional time-limited incentive for businesses to invest in plant or machinery. The increased AIA is for a temporary period of two years and will decrease to 25,000 on 1 January 2015 (that is, after the two year period of the increase has elapsed). Hire purchase: If you purchase assets using a hire purchase facility, you can claim capital allowances based on the original cost of the asset. The interest element is treated as a business expense. Leasing: If you lease the leasing company will claim the capital allowances and pass the benefit onto you in the form of cheaper rentals. You can treat the rentals as an operating expense. The actual amount you can claim will depend on your individual circumstances. The information given here is general information only. You should always discuss claims with your professional advisors such as your accountant or tax specialist. 0.9 Tel:

11 BUSINESS BENEFITS Relate benefits to costs Asset Finance allows you to pay for equipment as you use it and derive benefits. A deposit need not be a prerequisite within asset financing arrangements and you can even finance the VAT on your purchase. Asset finance is a powerful tool that, if well-applied, can act as a catalyst to drive overall equipment investment strategies. No additional security For established companies with financial stability security is normally taken on the asset concerned. However, for new start businesses or if you are borrowing a large proportion of the asset cost compared to your business balance sheet strength, it is not unusual for personal guarantees or charges on other assets to be required. Conserve cash By spreading the cost of the asset over a pre-agreed term, valuable cash flow resource is preserved. Terms are typically one to five years, although for equipment with a longer useful working life, facilities can be agreed over a longer term. Unique facility A bank will require you to have an account with it in order to agree a facility. Asset finance on the other hand is a flexible and stand-alone facility that allows you to source the best overall deal from the provider of your choice. Flexible terms Asset finance contracts can be tailored to fit individual needs. Payments can be individually tailored to your plans with flexible schemes including deferrals, stepped and seasonal repayments. Certainty of payments Most asset finance deals are arranged on a fixed rate basis, which means you know exactly when and how much you are paying each month. Variable-rate funding is also available. Competitive rates Asset finance rates can be as competitive, or even better than bank rates Tel:

12 BUSINESS BENEFITS continued Remove maintenance concerns With contract hire you don t have to worry about the unpredictable costs of maintaining assets. Refresh your assets Asset finance provides organisations with complimentary and additional funding lines which are not repayable upon demand. Leasing arrangements as fluid as your ever-changing needs. You can get equipment upgrades or swap old products for new at any stage during or at the end of the agreement. This means you can take advantage of new technology and have full use of the equipment that s best suited your business as it grows. This removes the risk of equipment obsolescence, which is regularly associated with cash purchase. Increase your borrowing power In some cases asset finance can provide off-balance sheet finance. The primary value of off-balance sheet financing, apart from its impact on accounting net income, is its effect on various liquidity and solvency financial ratios such as current ratio, debt-to-equity, and net working capital. Reduce your tax liability The tax and accounting impacts of financing assets demand careful consideration as well. You can reduce your overall tax liability through a leasing option, as some or all of the cost is tax deductible as a business operating expense. Your accountant will be able to advise you on what is your best option for your business Tel:

13 PASSENGER CARS & COMMERCIAL VEHICLES Your Finance Options: Cash purchase Simple and straightforward and you may be able to negotiate a good price. You will also own the vehicle, so you can sell it and recover some of the purchase costs at a later date. Today, both SME businesses and large enterprises are opting for financing over purchasing. Preservation of capital, increased cash flow and the desire to maintain a competitive advantage are the drivers. If you do buy the vehicle outright, remember that your expenses do not end with the purchase price. Depreciation is a real problem many vehicles can lose up to 70% of their value within three years. You will also need to consider additional charges such as servicing, maintenance and the cost of breakdown or damage. And if you sell, the cash price or trade-in value will depend on the market at the time and cannot be guaranteed. Manufacturer sales aid finance Many dealers offer hire purchase, leasing, contract hire or contract purchase schemes, sometimes at subsidised interest rates; even 0% for limited periods on certain models. You make fixed repayments over an agreed term and will eventually own the vehicle when the agreement terminates. However it pays to consider the total costs involved could you get the vehicle cheaper elsewhere? Are the monthly payments within your budget? What are the servicing costs? Can you get a replacement vehicle if it needs repairing? What will the resale value be when you want to replace the vehicle and what about disposal? You may find that alternative finance options give you more flexibility and control, at a lower cost. Bank borrowing Finance solutions that offer simple, fast and flexible ways for you to acquire vehicles in a more affordable manner. A business loan or personal loan can be easy to understand and arrange. You should however think of your longer term borrowing requirements. Is borrowing for the car likely to restrict your ability to borrow for other purposes while the loan is outstanding? To borrow for assets on overdraft rarely makes sense unless your cash flow is particularly strong. Asset finance Asset finance can offer many of the benefits of other options and more. For example, Hire Purchase is a straightforward repayment facility which enables you to ultimately own the asset. Payment patterns can be tailored to suit individual needs, generally involving a deposit followed by a series of periodic instalments over one year to five years. You may also delay paying some of the car s cost until the end of the agreement by structuring a balloon payment Tel: Web:

14 VEHICLE FINANCE WHAT IS THE BEST OPTION? Everyone knows it's important to keep company cars and commercial vehicles up to date and working efficiently for your business. But you wouldn't be the first to worry about tying up valuable capital in a depreciating asset. The answer is simple; finance solutions that offer simple, fast and flexible ways for you to acquire vehicles in a more affordable manner. Hire Purchase - Variable Rate - Balanced Payment Plan Balanced Payments is a finance option with the advantage of fixed monthly payments and the lower cost of variable rate. However, unlike Hire Purchase, where the interest is fixed, balanced payment plan tracks changes in the base rate. As rates fall or rise over the period of the contract, so does the interest charge you pay. You pay an initial deposit, and repay the balance in fixed monthly payments over an agreed period. At the end of the term any variation of interest is reconciled and will be settled as either a credit to you, or a charge. Alternatively, the term can be shortened or extended. You will ultimately own the vehicle. Hire Purchase - Fixed Rate Hire Purchase is a straightforward repayment facility which enables you to ultimately own the asset. Payment patterns can be tailored to suit individual needs, generally involving a deposit followed by a series of periodic instalments over one year to five years. The interest rate is fixed at the onset of the contract. You may also delay paying some of the car s cost until the end of the agreement by structuring a balloon payment. Finance Lease If your business is registered for VAT, there may be good financial reasons why leasing is for you. The interest rate is fixed at the onset of the contract. You retain full use of a vehicle for an agreed period of time for an agreed periodic rental. It offers all the practical benefits of ownership without any of the potential burdens. Contract Hire If your business prefers to hire rather than own vehicles this could be the solution. Contract Hire enables you to concentrate on your core business activities, while avoiding the financial risk and administrative burden of owning a vehicle fleet. With payments over one, two, three or four years, you get to drive your chosen vehicle without ever having to consider its value in the future or how to dispose of it Tel:

15 VEHICLE FINANCE - WHAT IS THE BEST OPTION? continued Contract Purchase Companies who want to own their vehicles, but avoid the risk of depreciating assets often prefer this option. This method of funding is ideal if you cannot fully reclaim VAT and is particularly suitable for financing the more prestige vehicles on the fleet. You have the option to purchase the vehicle at the end of the contract period. Alternatively you can return the vehicle to Capitas. One useful option that companies are looking for in their financing agreements is to tailor payments to match the return on investment. Fleet Management Should you prefer ownership or other financing solutions rather than Contract Hire or Contract Purchase fleet management offers an extensive range of management services. Effectively you elect to take on the complete financial risk associated with ownership of the fleet, including asset and maintenance risk. The administrative functions are outsourced. A fleet management fee is charged per vehicle per month, with fleet costs charged back to the company on an actual cost basis. Sale & Leaseback Purchasing a vehicle fleet ties up valuable cash resource at the front end and involves the risk of unpredictable resale values at the back end. By selling the fleet and leasing it back, your company will benefit from fixed monthly costs and the elimination of residual value exposure which means you can budget more effectively Tel:

16 TECHNOLOGY Today, more than ever, financial managers, buyers, contract administrators and computer users are faced with a new set of factors when considering technology acquisitions. It pays to know what the current market trends are and what they will be in a year s time. IT acquisitions are no longer driven solely by economic factors. Instead, other influences and their impact must be considered, because the risk of owning yesterday s technology has never been greater. The useful life of equipment has never been shorter - and the same rules used before in evaluating whether to lease or purchase IT solutions probably no longer apply. Sourcing, maintaining and replacing expensive IT equipment can be time consuming and costly. If you are looking to invest in IT equipment, or perhaps want to overhaul your existing technology infrastructure, it pays to know what the current market trends are and what they will be in a year s time. You will also want to find the most efficient way of channelling your IT budget to best fit your business needs. HOW CAN I GET THE MOST OUT OF MY IT BUDGET? Buying from leading retailers The largest PC stores can offer a wide selection of the latest IT at attractive prices. However they are generally aimed at the small office home office (SOHO) market and will not meet medium-sized businesses and large enterprise supply requirements in terms of price, volume and support. Buying from Original Equipment Manufacturers (OEMs), Independent Software Vendors (ISVs) or Value-Added Resellers (VAR s) Some PC manufacturers such as Dell and HP allow you to configure and order PCs and servers online and offer a range of purchase or leasing packages alongside. The ease of arranging these packages can meet the needs of some businesses, but you need to consider carefully the true costs of the finance agreement and the cost of additional services and warranties, the profits from which are often used to hold down the cost of the equipment itself. Asset Finance Depending on the size of your IT expenditure the right asset finance provider can offer you a complete solution for all your needs, from funding all aspects of your IT solution to on demand project finance and help with upgrades and disposal. Even if your annual spend is relatively small, an asset finance provider can often help make sure you get the best finance deal while allowing you the flexibility to choose your own vendor Tel:

17 TECHNOLOGY LEASING Financial & operational benefits Recent years have seen rapid advances in technology, shorter product life-cycles, and significant price/performance improvements. As companies face the need to better control their investment in IT, leasing has emerged as an important management tool for procuring, managing and disposing of these business critical assets. The importance of IT systems in conducting day-to-day business will continue to grow and its costs will command an even greater percentage of company technology budgets. As a result, organisations will be under even greater pressure to better and more strategically manage these assets. Leasing is emerging as an integral component in helping companies achieve this objective. It will provide you with the flexibility required to keep pace with rapid technology changes while reducing the overall cost of acquiring, managing and disposing of your equipment. Many companies are already leveraging leasing to better manage their technology and improve their return on investment. As more companies rely on technology for strategic business purposes, it s anticipated that an even greater percentage will turn to leasing to help them realise the best return on their considerable financial outlay. Important considerations When you seek to finance technology commitments you should consider several factors as you evaluate alternative financing providers. Knowledge of and commitment to the IT market are important. The more the financing provider knows about the market, the better able it will be to understand your needs and add value when it comes to terms and structure. The provider should come to the table with innovative ideas that will benefit you. Commitment can be measured by longevity and staying power through all market and economic conditions. An ability to finance the total solution is key. Without it, you may have to deal with individual financing sources for hardware, software and professional services and end up with multiple payment schedules and far more complexity than is necessary Tel:

18 TECHNOLOGY LEASING Important considerations continued The provider should offer flexible payment terms. Most often, payments are structured on a periodic basis. However, industry or seasonal factors may mean that alternative payment schedules e.g., quarterly or bi-annual would benefit you, and the financing provider should be open to negotiating other terms to provide you with the greatest possible flexibility. Software and services form the largest and fastest-growing part of the IT market. It is critical when making large investments in technologies you understand the acquisition options open to you and partner with a financing provider who can fund these soft costs and meet your specific needs. End-of-life management De-commissioning and disposing of technology is complex and costly. It's fraught with risk. Data security is a worry. Remarketing opportunities are limited. The administrative and logistical burdens can be daunting. What does this mean to my business? The Waste Electrical and Electronic Equipment Directive (WEEE) makes your business responsible for ensuring all electrical and electronic waste is disposed of correctly either re-used, remarketed or recycled. What happens if we ignore this? Financial penalties for non-compliance are severe. How can asset finance help? The right provider can offer end of life services, remove compliance headaches whilst managing both the cost and process of secure asset disposal Tel:

19 PLANT AND MACHINERY If you are a producer, you need sophisticated equipment and technology producing maximum productivity. Company owners in industry, the building trade and agriculture know that the latest plant and machinery can provide a decisive competitive edge. Whether you are acquiring heavy equipment, construction equipment, printing machines, plastics machines, agricultural machines, machine tools, the costs can be considerable. Company owners in industry, the building trade and agriculture know that the latest plant and machinery can provide a decisive competitive edge. SO, WHAT ARE YOUR OPTIONS? Cash Purchase It may be easier to negotiate improved terms when paying by cash but there are other important implications that need consideration. What happens if the equipment becomes outdated? How will the assets be maintained to ensure they remain in good working condition? Is there the ability for you to re-market the equipment if and when you want to sell it? What happens if your customer needs change or yours? Manufacturer Sales-Aid Finance Due to the large values involved when purchasing heavy plant and industrial machinery, many manufacturers provide their own sales aid financing plans to help businesses purchase their equipment. This can often be attractive to customers as its easy to arrange, but make certain you understand the true cost of the arrangement. Additional services, warranties and maintenance contracts can significantly bolster the selling price, generating additional revenues for the manufacturer over and above the cost of the equipment itself. For this reason, you may want to consult an independent asset finance professional. Asset Finance Your asset finance provider should act as an additional resource, working on your behalf during the buying process. From validating the supplier, to placing the equipment order on your behalf, to ensuring the equipment is commissioned correctly and beyond. Spreading the cost of these types of assets over their useful working lives makes sound economic sense, allowing investment in other key business areas. Predictable fixed payments provide for easy budgeting and you can relate benefits from the equipment to costs Tel:

20 FREQUENTLY ASKED QUESTIONS Do you have a question? You may be able to find the answer below. Alternatively, pick up the phone and call us. We ll be pleased to have an informal conversation. What is asset finance? Asset based finance is an advance that is secured on the asset. You make regular repayments over an agreed term. Because of the security, asset finance is often more flexible than other forms of finance and you can fund up to 100% of the asset value in certain circumstances. The repayments can also be matched to the life of the asset to suit you. What assets can I finance? Any assets that help your business to run and grow successfully can be financed. IT products and professional services including software, PC s, servers, networks, storage, data processing Renewables & low carbon technologies for energy projects including solar PV, biomass, CHP, heat pumps & LED lighting Office refurbishments, telecoms equipment and furniture solutions Vehicles such as cars, light commercial & heavy goods vehicles including vans, trailers and tractor units as well as coaches and buses Manufacturing, engineering, construction and plant hire equipment such as yellow plant, print machinery and machine tools New and used corporate and commercial aircraft, ground support equipment and ancillary aviation equipment Sail and power yachts Medical equipment, and more Why not use my own working capital? With a low interest rate environment this is a consideration. You will be able to claim capital allowance and will take title to the equipment. However, spreading the cost of an asset over its useful working life makes sound economic sense. It also enables you to use the cash available to invest in other key business areas which will support growth Tel:

21 FREQUENTLY ASKED QUESTIONS continued Why don t I just borrow from my bank? You could, but a loan from the bank will reduce your ability to raise funds for other purposes while it s outstanding. Asset finance protects bank credit lines needed for working capital, debtor finance, and expansion. Security arrangements such as debentures and covenants are often a pre-requisite of any advance. Do I have to place a deposit? This will depend on the funders and the type of asset you want to purchase. Many funders offer flexible structures which match your cash flow and the asset life and asset use. It also depends on the level of security required. What information do lenders require to make a credit decision? It depends on how much you want to borrow and for what purpose. Most finance consultants will be familiar with the underwriting process and should discuss your business in detail to get a better understanding of your needs. They can then package your credit application in the most appropriate way to give you best chance of getting an acceptance from the underwriters. Can assets be based overseas? Yes, potentially. Funders should try to be flexible and provide solutions-based finance. This is a complicated area, so it's important that you contact your provider to find out what's possible. Does my business need historical profit trends to raise finance? This will depend on the funder. Most funders will look at the credit history of the business and analyse trends in key financial ratios. They will also want to understand your plans to help satisfy them that you can meet your obligations under the terms of the finance agreement. Repossessing any asset is always seen as a last resort although many funders do have good re-marketing capabilities should they need to enforce this security. These funders will often base part of their lending decisions on the asset particularly if they are specialists in financing that type of equipment. How quickly will I get a credit decision? Each decision is based on your own situation, but for proposals under 100,000 usually within three working days. Larger, more complex transactions will naturally take longer Tel:

22 KEY FACTS ABOUT ASSET FINANCE & CAPITAL INVESTMENT The UK is currently the third largest asset finance market in Europe, behind Germany (1) and France (2) In 2012, new business excluding high value finance was 19.5 billion (high value finance refers to those contracts where the project cost is more than 20 million) In 2012, 11.7 billion of new finance went to support investment by small and medium sized enterprises (SMEs). Approximately 250,000 SMEs used asset finance to invest in capital equipment The percentage of fixed capital investment financed by the asset finance industry peaked in 2008 at 33.8%. The most recent annual penetration rate in the twelve months to September 2012 was 25.4% The asset finance industry supports investment by all industry sectors. The distribution of asset finance by industry sector broadly reflects that of UK business investment The sales finance channel - where new business is introduced to the finance company via a retailer, dealer, supplier or manufacturer - reported the strongest growth in New business was 20% higher than in 2011 at 5.2 billion Broker introduced finance grew in 2012 by 16% to 3.4 billion Distribution of new business written in 2012 by asset category* Passenger Cars: 32% Commercial Vehicles: 22% Plant & Machinery: 20% Business Equipment: 9% IT Equipment: 7% Ships, Aircraft & Trains: 2% International Assets: 2% Property: 1% Other: 5% *Source: Finance & Leasing Association (FLA) - the major UK industry body for the asset finance industry Tel:

23 My business is growing; I need to buy some new equipment. How should I finance it? Q: DO YOU WANT TO BUY THE ASSET UP FRONT YES NO Q: Are you prepared to own a depreciating asset, and find ways to dispose of it later? Q: Would you prefer a flexible finance solution, built around the needs of your business? NO YES Consider asset finance. Asset finance is specifically designed to help you acquire business assets such as vehicles, IT, plant and machinery. It offers you: YES A CHOICE OF FINANCE SOLUTIONS AN ADDITIONAL LINE OF CREDIT, COMPLIMENTARY TO YOUR CURRENT BORROWING Q: Do you want to take out a bank loan? NO Q: Do you want to use your bank overdraft to purchase it? NO Q: Would you prefer to pay cash? FIXED PAYMENTS TO SUIT YOUR BUDGET THE ABILITY TO REGULARLY UPGRADE TO THE LATEST EQUIPMENT YES YES YES Q: Do you want to arrange this online? Q: Do you want to use a call centre? Q: Would you prefer to talk to an expert face-to-face? ASK YOURSELF: ASK YOURSELF: ASK YOURSELF: Will you be able to set the payments at a level that meets your needs? Will the total cost be as competitive as other forms of finance? What flexibility will you have if your needs change later on? Should you use a facility designed for short-term needs to fund a long-term purchase? `if you put too much strain on your overdraft, are you putting essential working capital and other lines of credit at risk? For most businesses, cash is critical. Do you have sufficient cash in reserve to cope with your immediate needs or a downturn in trading? Would you be using up capital that could be better used to drive other areas of your business operation? YES YES YES ASK YOURSELF: Is my purchase straightforward enough to go this route, or would it be better to talk to an expert? Will I get the advice I need? How will I know if I ve got the best deal? What happens if my circumstances change later on? Do you really want your bank to control so much of your borrowing? 0.22 As with any financial decision, you may want to talk to a professional who can offer you independent advice tailored to your needs. Someone who knows how to source the best deals, explain all the options and work in partnership with you to help your organisation grow.

24 HELPING ORGANISATIONS TO GROW Capitas is a specialist asset and commercial finance company committed to supporting private and public sector clients fund, acquire and manage the assets they need to succeed. What differentiates Capitas is our ability to think strategically, develop and deliver solutions that support business objectives. We are not looking for short-term gains but to build a long-term working partnership by helping you choose the most appropriate finance package for your needs. We are the experts in our field. What differentiates Capitas is our ability to think strategically, develop and deliver solutions that support business objectives.. Why should you choose Capitas as your one-stop financing partner? Simply, it s because we offer: Prudent financial advice: We can help you conserve cash, lower your total cost of ownership, and support your overall financial objectives. Customised solutions: Our facilities can be tailored to your unique situation. A pleasing experience: We've simplified the entire financing process, from acquisition through to disposal if required. Relational management: We're a proven partner, dedicated to your success across not just the life cycle of your asset investments but our ongoing business relationship. One-stop financing: Our portfolio of financial solutions can help you optimise value from your investment in business assets. Call us on: us at: Visit us at:

25 Capitas Finance puts great value on building strong relationships and communicating with its clients. More often than not it starts with a simple phone call or an initial meeting. We would be delighted to hear from you if you d like to find out more about how Capitas Finance can support your organisation. Contact: Jeremy Hartill Simon Brook Telephone: financing your future:

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