Asset finance is a way of funding capital expenditure on tangible, moveable assets, using the asset as the primary source of security. Funding terms and products are structured around the working life of the asset being funded.
Hire / Lease Purchase
Hire Purchase agreements allow the borrower to obtain legal ownership of the asset at the end of the agreement, by exercising an option to purchase and having complied with the terms of the agreement.
HSBC will usually pay the supplier directly for the asset. You still enter into a contract with the supplier and negotiate the terms of purchase. However the sales invoice raised by the supplier will need to be addressed to HSBC. In some cases, we may need to review the terms of purchase between you and the supplier.
HSBC will have legal ownership of the asset throughout our agreement with you and if we have funded a vehicle we may register this interest on HPI.
Unless non-VAT qualifying or under an exemption, VAT will be applied to our finance agreement and payable upfront at the amount stated on your supplier’s invoice. HSBC will then issue you with an invoice in order for you to reclaim the VAT.
Hire Purchase is a way of spreading the cost of capital investments for your business – with straightforward documentation and regular repayments. You can acquire ownership of the assets at the end of the agreement.
Finance Lease agreements enable the borrower to spread the cost and the VAT of capital investments, with regular rentals under a finance agreement.
HSBC will usually pay the supplier directly for the asset. You still enter into a contract with the supplier and negotiate the terms of purchase. However the sales invoice raised by the supplier will need be addressed to HSBC. In some cases we may need to review the terms of purchase between you and the supplier. At the end of the agreement you would sell the assets on behalf of HSBC to an unrelated third party and retain the majority of the sale proceeds.
Under a lease, legal ownership of the assets cannot pass to the borrower, but the borrower has quiet enjoyment of the assets throughout the funding period.
VAT is applied to each rental rather than being payable upfront.
An asset loan is a funding agreement where the lender may not wish to take title to the assets being funded – but will seek an alternate form of security in support of the lending. This usually occurs where there is no tangible security to be taken from the goods in themselves (for example IT Software) or refinancing assets that have been in situ and used by a company for some time.
Asset loans are often secured by a registered charge over some or all of the assets of the borrower and can be a way of funding an existing asset base.
At the end of the loan period any additional security instruments would be released.
No VAT would be charged / applicable to the loan agreement as no sale of assets is taking place.
An Operating Lease is a funding agreement where the borrower hires assets which HSBC owns, and pays a rental to HSBC for the use of the assets for an agreed period of time. Usually only applicable to a specific selection of asset types, this funding method assumes the assets will be handed back to HSBC at the end of the agreed funding term. HSBC carries the risk that the residual value of the leased assets at the end of the agreed funding term is less than was expected at the outset.
HSBC will usually purchase the asset from the supplier and pay directly. You still negotiate the terms of purchase with the supplier but the sales invoice will need to be addressed to HSBC.
At the end of the lease there will be a number of pre-agreed return conditions, stipulating the condition and allowed usage of the asset when it comes back – to either be re-leased or sold by the lender.
The accounting changes to IFRS16 have meant changes in the way operating leases are treated in your financial accounts and you should seek professional advice before entering into them.
Operating Lease is a way of funding capital expenditure for periods shorter than their useful life – for example deploying assets on a specific contract. The asset will continue to be serviceable after the agreement finishes and therefore the lender can invest in its future value.