Annual Percentage Rate (APR)
The annual rate of interest on a credit agreement. Including the interest rate, fees and any other charges associated with the agreement.
Asset Finance
A financial agreement between a company/individual and a finance company/lender whereby an asset is initially paid for by the finance company and the company/individual then makes regular payments to them over a specified period. Types of Asset Finance include: Hire Purchase, Lease, Operating Lease, Refinance (on a sale & HP back) and unsecured farm loans.
Balloon Payment
A lump sum payment due at the end of a Hire Purchase or Lease agreement. It is usually a larger payment than the previous monthly payments, hence the term ‘balloon’.
Broker
An intermediary who arranges finance agreements between customers and lenders. They do not charge a fee for their services. They will typically receive commission from the lenders, either as a fixed fee or a fixed percentage of the amount a customer borrows.
Capital Allowances
The amount of depreciation that can be offset against taxable profits, reducing the amount of tax paid. The allowances are calculated as a percentage of the initial cost of the equipment or the written-down value at the end of the previous tax year. Find out more here: https://www.gov.uk/capital-allowances
Cash Flow
The actual inflows and outflows of cash faced by a business. When lenders complete a credit check on a company or individual wanting finance, part of this will be to establish whether they have enough cash to afford the repayments on an agreement.
Credit Rating
An independent assessment of a company’s creditworthiness. Also known as credit report, or credit score.
Deposit
A payment made upfront of the purchase or finance agreement.
Equity
The residual value of an asset. This is the difference between the value of the asset and the minimum payments still owed on the asset.
Guarantee
An undertaking to answer for the payment of a debt or performance of any other type of obligation, in the event that payments are unable to be made. A director’s guarantee is sometimes required by lenders depending on the size of the deal and strength of the company.
Hard Assets
A term used to refer to assets that meet the DIMS (durable, identifiable, moveable, saleable) criteria. They tend to be high value items that hold their value, such as vehicles, machinery and manufacturing equipment.
Hire Purchase
A finance facility that gives the customer an option to buy the asset at the end of the agreement. Provided that they keep to the terms of the agreement. The customer usually pays the VAT up front.
Interest
The price of borrowing money over time.
Lease agreement
A finance facility where the customer has full use of the asset in return for monthly payments to the owner of the asset (the lender). The VAT cost is spread across the monthly payments.
Lender
Also referred to as ‘lessor’. The owner of an asset used by someone else under the terms of a finance facility.
Operating Lease
A type of leasing facility where the lender retains the risks and rewards of owning the asset. The Lender will set the predicted residual value of the equipment at the end of the agreement. The customer then finances the difference between this amount and the purchase cost.
Option to Purchase
The opportunity for a customer to purchase an asset at the end of a hire purchase agreement. The option to purchase fee is stated on the agreement and is usually at a price that is significantly lower than the asset’s market value.
Own – Book
Where asset finance brokers decide to fund some deals themselves using their own capital or borrowed funds.
Payout
The point in the process of setting up a new finance agreement where the lender pays the supplier for the equipment, the paperwork is signed off and the agreement begins.
Proposal
A presentation of a customer’s funding needs in detail (supplied by the finance broker), which gets entered into a lender’s system for a credit review and approval decision, made by an underwriter.
Refinance
There are a few different refinancing options available. Such as, refinancing a balloon payment at the end of a hire purchase agreement, or refinancing assets that are already owned outright (or have equity in), as a way of releasing cash flow back into your business.
Sale & HP Back
This is where a company/individual sells an asset to a lender for a lump sum, then they lease it back through repayments. This allows the company/individual to free up cash whilst retaining use of the asset.
Soft Assets
A term used to refer to assets that do not meet the DIMS (durable, identifiable, moveable, saleable) criteria. Their value is usually lower and they don’t tend to hold value over time. Examples include; IT and computing infrastructure, security equipment and office furniture.
Supplier
Also referred to as reseller or dealer. Their main activity is to sell vehicles and equipment to businesses or individuals.
Term
The agreed time period of a finance facility.
Unsecured Loan
A loan needed without the customer needing to provide any security. Most finance facilities are secured by the asset itself and/or with a director’s guarantee. We have access to lenders who will offer unsecured loans specifically within the agricultural sector.
VAT Deferral
Value Added Tax (VAT) costs can be deferred for up to 3 months. Allowing customers time to reclaim the VAT before having to pay it off as part of the finance agreement.
Zero Percent Finance
Subsidised credit may be offered by manufacturers on new machinery. Usually marketed as ‘zero percent finance’ deals.
