As economic confidence continues to return, companies around the UK are looking to replace machinery and equipment and to invest in new technology, having put the process on hold over the last six to seven years.
Many have turned to machinery finance to fund new business assets such as plant and machinery, agricultural machinery and construction equipment. Latest figures show that new asset finance business in the UK has grown for the last 24 months in a row, and that spending on a series of asset classes is up year-on-year.
For example, the Finance and Leasing Association reports that there was a total of £28.381bn worth of asset finance provided by its members in the 12 months to the end of September, a 12% year-on-year increase.
Of this total, plant and machinery finance amounted to £5.733bn, up 11% year-on-year, with a total of £465m worth of plant and machinery finance provided in September this year alone.
Why is machinery finance so popular?
More businesses are now aware that there is a range of financing solutions available to them and, as a result, many forward-thinking companies are looking at alternative forms of funding for machinery and equipment, other than traditional bank loans.
In its simplest form, asset finance is a loan that is used to purchase tangible assets. These assets can be anything from construction machinery, agricultural equipment, plant and machinery, IT equipment – even boats and planes.
Asset finance provides a resource over and above a normal banking facility and, as such, is a useful additional source of funding that provides significant cash flow and tax benefits for businesses looking to purchase a new piece of equipment, machinery or other fixed assets.
It might be a well-established form of financing but, in recent years, asset finance has grown significantly as more and more companies have become aware of the benefits offered by this flexible, cost-effective, risk-managed form of financing.
Asset finance, along with other forms of finance, such as peer-to-peer and invoice finance, have all grown in popularity as businesses have looked to find alternative methods of funding to the traditional bank loan, and also to provide solutions to specific funding requirements.
What are the benefits of plant and machinery financing?
Asset finance has grown because of its simplicity and flexibility as a funding method for machinery, farm machinery and other business equipment and a whole range of asset types.
The simplicity and flexibility of asset finance means that it’s suitable for all types of business from start-ups buying their first vehicle, to businesses investing in new IT equipment and manufacturers investing in major new plant and machinery.
The reason for this, other than available tax benefits and the ability to budget more easily, is that on most occasions the asset itself is security, which makes asset finance very accessible as a form of funding.
The benefits afforded to manufacturing companies, in particular, by asset financing have been further enhanced by an increase in the annual investment allowance (AIA).
What is the Annual Investment Allowance?
Many companies may still be unaware of this form of capital tax relief that offers a 100% allowance on qualifying capital expenditure in the year of purchase.
This was increased to £500,000 a year with effect from April, 2014 for companies, sole traders and partnerships, a transitional amount that only lasts until the end of this calendar year.
However, in the March 2015 Budget, the Chancellor announced that the Annual Investment Allowance (AIA) would will be set permanently at £200,000 per annum from 1, January, 2016, providing businesses with certainty over their spending plans.
While not as high as many firms were hoping for, the news removed the uncertainty surrounding this important tax break, as many had expected it to revert to the original £25,000 from January.
But, even so, going forward the AIA provides a 100% deduction for the cost of most plant and machinery, (but not cars), purchased by a business up to the annual limit and is available to most businesses.
Seek expert advice
With asset finance firmly on the radar of more and more companies, seeking expert advice is vital for those businesses that want to use machinery and other asset finance.
Your advisor should be able to advise you on which asset finance product is best suited for your needs and get involved at an early stage of the buying cycle. That way, your supplier can put in place a funding solution that is right for you.
Investing in new plant and machinery can be a big decision for your business, and it makes good business sense to think about how best to finance your investment.
Maxxia’s plant and machinery finance experts can help improve your cash flow by keeping your working capital free and offering a range of options, which can even take assets off your balance sheet.
Funding new business equipment doesn’t have to be a daunting prospect and, at Maxxia, our team of experts have years of experience offering specialised machinery and equipment financing for a variety of businesses from different sectors.
These include but are not limited to: