The A-Team: Logistically Speaking
Rob Riddleston examines how companies can finance expansion projects and new equipment purchases in a post-recession world.
According to a report by Oxford Economics for the Finance & Leasing Association, the recession saw an unprecedented fall in companies’ expenditure on new equipment.
And as fallout from the downturn continues, who can yet justify major investment in new stock? Many companies in a wide range of sectors are now firmly of the make-do-and-mend mindset. But there are ways – and very good reasons – to invest in new stock despite the economic downturn, particularly in an industry as maintenance intensive as transport.
Understandably, as firms’ cash reserves have been negatively impacted riding out the waves of recession, there is a danger that many companies simply will not have the capital to reinvest when business does eventually pick up.
Therefore, companies operating in the transport and logistics sector that own and operate assets are increasingly keen to explore asset finance as a particularly efficient use of the balance sheet.
Indeed, leasing could provide the answer for many freight and logistics companies who need to reinvest in new fleet stock.
Leasing offers the opportunity to access capital equipment in affordable way, while lowering risks, and there are a number of different leasing options available.
The three main ones are hire purchase (HP), a finance lease and an operating lease.
HP (or lease purchase) can provide finance for up to 100% of the asset cost and can be paid back in a way that suits a firm’s cash-flow.
At the end of the agreement, the company owns the asset. The benefits of HP are that a business can buy assets in a tax-efficient way without using cash reserves; the repayment structure is fixed from the start to help with budgeting.
A finance lease allows a firm to use an asset – a fleet of lorries for example – for a fixed period of time. At the end of that agreement, the company can sell the asset or continue to lease it for a nominal rent. Again, this is a tax-efficient process, with payment structured to match cashflow and interest rates that can be fixed or linked.
With an operating lease, a company can use an asset for as long as they need to, with fixed rentals and none of the risks associated with ownership.
Rental and return conditions are usually fixed at the start of the leasing period and, again, repayments can be matched to meet a company’s income. One of the key advantages of an operating lease is that it can be viewed off balance sheet, providing significant tax and financial advantages.
All companies have different needs, so banks and other lenders will usually work closely with them to help determine the most appropriate product. They will usually demand to see three years’ accounts and a year’s profit and loss records.
With the recovery only slowly spluttering into life, leasing offers firms an effective way to reinvest in their business while protecting their balance sheet.
With more transport firms investigating this option, it should mean that when greater economic stability returns, more companies will be in a stronger position to gear up to move from survival to growth.
Rob Riddleston is Head of Transport and Logistics, Barclays Corporate
www.barclayscorporate.com
And as fallout from the downturn continues, who can yet justify major investment in new stock? Many companies in a wide range of sectors are now firmly of the make-do-and-mend mindset. But there are ways – and very good reasons – to invest in new stock despite the economic downturn, particularly in an industry as maintenance intensive as transport.
Understandably, as firms’ cash reserves have been negatively impacted riding out the waves of recession, there is a danger that many companies simply will not have the capital to reinvest when business does eventually pick up.
Therefore, companies operating in the transport and logistics sector that own and operate assets are increasingly keen to explore asset finance as a particularly efficient use of the balance sheet.
Indeed, leasing could provide the answer for many freight and logistics companies who need to reinvest in new fleet stock.
Leasing offers the opportunity to access capital equipment in affordable way, while lowering risks, and there are a number of different leasing options available.
The three main ones are hire purchase (HP), a finance lease and an operating lease.
HP (or lease purchase) can provide finance for up to 100% of the asset cost and can be paid back in a way that suits a firm’s cash-flow.
At the end of the agreement, the company owns the asset. The benefits of HP are that a business can buy assets in a tax-efficient way without using cash reserves; the repayment structure is fixed from the start to help with budgeting.
A finance lease allows a firm to use an asset – a fleet of lorries for example – for a fixed period of time. At the end of that agreement, the company can sell the asset or continue to lease it for a nominal rent. Again, this is a tax-efficient process, with payment structured to match cashflow and interest rates that can be fixed or linked.
With an operating lease, a company can use an asset for as long as they need to, with fixed rentals and none of the risks associated with ownership.
Rental and return conditions are usually fixed at the start of the leasing period and, again, repayments can be matched to meet a company’s income. One of the key advantages of an operating lease is that it can be viewed off balance sheet, providing significant tax and financial advantages.
All companies have different needs, so banks and other lenders will usually work closely with them to help determine the most appropriate product. They will usually demand to see three years’ accounts and a year’s profit and loss records.
With the recovery only slowly spluttering into life, leasing offers firms an effective way to reinvest in their business while protecting their balance sheet.
With more transport firms investigating this option, it should mean that when greater economic stability returns, more companies will be in a stronger position to gear up to move from survival to growth.
Rob Riddleston is Head of Transport and Logistics, Barclays Corporate
www.barclayscorporate.com
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