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Up to date information about asset funding alternatives

By: Amanda Paxman

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In common with all areas of commercial purchasing you should aim to get several quotations when selecting an equipment funding company. The simple approach in the first instance is to get a quotation from the recommended finance company. The prices charged by the recommended finance provider should be close to market prices. Always be practical and recognise that you may not get the best quotation for your situation. Shop around and get multiple prices from other companies.

If you are in the market for equipment funding then it will not be difficult to locate an appropriate leasing company. The marketplace for leasing is huge and since most assets can now be leased it is simply a case of locating a finance provider who works with equipment funding. Most of the time the company selling the asset does not provide the finance themselves directly, they rely on a third party equipment leasing company. You will often get a referral from the company selling the asset to their preferred finance provider.

A common form of equipment funding is known as Contract Hire. This is another form of operating lease and is often adopted for acquiring vehicles. Most contract hire agreements include a number of potential service features like maintenance, replacement during repair, management, etc. When contract hire is used the finance company retains ownership the asset. The way in which the rental payments are decided is based on a residual value of the equipment after a predetermined timescale has concluded. This means that the cost calculations include a fee to recover the asset depreciation during the course of the hire timescale.

In the instance of a Finance Lease the equipment is owned by the finance company. However in this situation the lease payments are calculated to include the full cost of owning the equipment. Another approach would be for a balloon payment to be included to keep regular payments low and a larger final payment at the end of the term of the lease. When the asset is eventually sold at the end of the term the business will normally receive a share of the sales price split with the leasing company according to a defined formula. A finance lease may also include the option to extend the rental period when the lease term finished for what is known as a “peppercorn” rent. The peppercorn rent is a small ongoing payment compared with the size of the original payments.

Contract purchase and Hire Purchase are terms which effectively mean the same thing. Generally the term contract purchase is used in commercial environments whereas hire purchase is used for consumer purchases. Where a business enters into a contract purchase agreement the equipment is owned by the finance provider until the final payment is made at the end of the contract period.

A business may also enter into a Lease purchase agreement. This is basically a hire purchase contract which ends with a final larger payment at the end of the contract period. Since this is based on the same principles as hire purchase then the finance provider retains ownership of the asset. In the case of a lease purchase agreement then once the final payment is made then legal title to the asset moves to the purchaser.

Article Source: http://depositarticles.com/

In common with all areas of commercial purchasing you should aim to get several quotations when selecting an equipment funding company. The simple approach in the first instance is to get a quotation from the recommended finance company.

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