Capital Equipment News August 2018

ASSET FINANCING

The lessee will make rental payments that cover the original cost of the asset, during the initial, or primary, period of the lease. There is an obligation to pay all of these rentals, sometimes including a balloon payment at the end of the contract. Once these have all been paid, the lessor will have recovered its investment in the asset. What happens at the end of the primary finance lease period depends on the actual agreement but there are possible options, including the lessee having to sell the asset to a third party, acting on behalf of the lessor; the asset can be returned to the lessor to be sold; and the customer can enter into a secondary lease period. When the asset is sold, the customer may be given a rebate of rentals which equates to the majority of the sale proceeds (less the costs of disposal) as agreed in the lease contract.

TALKING POINT

“The yellow metal industry is the ‘sweet spot’ of our asset financing business. In this sector, we have assets right from the TLB to large mining machines.”

Brett Kessel, Asset and Trade Finance at ReichmansCapital

cost-effective ways to fulfil their asset financing needs, off-balance sheet financing has become the “buzzword” of the industry in the last couple of years. “Many are moving away from the traditional instalment credit approach, which reflects the assets on company balance sheets,” says Kessel. “Financing assets off the balance sheet protects key debt-to-equity ratios, while freeing up cash flow for businesses to focus on their core activities. Consequently, the majority of our transactions are Finance Leases at the moment.”

So, what is a finance lease? A Finance Lease is a way of providing finance – effectively a leasing company (the lessor or owner) buys the asset for the user (usually called the hirer or lessee) and rents it to them for an agreed period. Basically this means that the lessee is in a broadly similar position as if they had bought the asset. The lessor charges a rent for hiring the asset to the lessee. The lessor retains ownership of the asset but the lessee gets exclusive use of the asset (providing it observes the terms of the lease).

Flexibility matters A key competitive edge of

ReichmansCapital’s approach to financing is the flexibility. It is often difficult for capital equipment operators, especially small businesses, to get trusted lending partners that they can rely on to access funding with much more ease. Sometimes

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