(IT) LEASE PURCHASE
Lease Purchase is a flexible and cost effective alternative to
bank loan funding, and can provide an additional line of credit.
The facility is very similar to Hire Purchase in that it enables
customers to spread the cost of acquiring the IT solution whilst
gaining ultimate ownership. The facility offers customers an
immediate entitlement to Writing Down Allowances and is therefore
attractive to those companies seeking to reduce tax liability in the
short tem. Tax relief is also available on the interest element of
This form of financing brings with it several commercial
advantages. For instance, capital repayments are fixed and the
acquisition costs can be closely linked with the potential cost
saving or earning power of the IT solution. As the new technology is
being purchased out of future revenue, working capital is preserved
for other uses. The real benefit of Lease Purchase though, is that
it allows customers to negotiate flexible repayments that reflect
fluctuations in cash flow.
Lease Purchase essentially calls for an initial deposit followed
by a series of instalments. At the end the agreed finance term, and
upon receipt of the final payment the customer secures title to the
product(s) in question. Such a facility is particularly valuable for
customers who wish to fund a system over a period, which is shorter
than its useful working life.
Key features and benefits include:
- On balance sheet financing with immediate implied ownership
- Customer can claim appropriate first year and subsequent
Writing Down Allowances.
- Period of the agreement is negotiable.
- Full ownership at the end of the finance term on payment of
a nominal ‘option to purchase’ fee.
- Customer can retain 100% of any future net sale proceeds.
- Agreement is usually secured on the products being financed.
- Bespoke payment structures and negotiable deposits can be
tailored to fit specific needs.
- Fixed repayments enable customers to plan their repayments
over the term of the contract with absolute certainty.