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If you had to choose one adjective to describe how you are feeling about your business' future right now, what would it be?
Excited?
Optimistic?
Good?
Neutral?
If so, that's music to our ears, but for many business owners, the unknowns of a post-pandemic future make them feel, at best, anxious, and at worst, terrified.
Of course, fear affects everyone differently. For some it is a catalyst, a reason to take action and fight back, but for others it is a paralyzer. Taking no action and treading water might feel like a safer option, but that is not how businesses grow. Upwardly mobile businesses need assets, the latest technology, functional workspaces, a motivated and productive team, and, of course, cash in the bank.
When used by the right businesses in the right way, finance leasing is a great way to fund those assets and instigate growth, while simultaneously keeping hold of their precious cash.
Why, then, are some business owners scared of finance leasing?
One of the best parts of being an asset finance broker is seeing the positive impact that the funding we secure for a customer has on their business, their aspirations and their growth. Whether it is spreading the cost of that new IT system (or even software license renewals), financing the fit out of an office space or refinancing existing plant and machinery, ultimately the outcome is always positive.
Plus, many companies get to unlock significant tax benefits when choosing finance above cash whilst others are able to avoid normal budget restraints, deliver the project they want and start returning benefit to all their stakeholders.
However, despite the positive outcomes, some business owners are still apprehensive about using asset finance.
A survey by The British Bank found that over 42% of UK SMEs they surveyed do not currently use finance and are unwilling to do so whilst 68% agreed that “their aim was to pay down debt and remain free if possible”. We want to be able to puff our chests out and, like a badge of honour, declare we are debt free. We are proud not to use finance.
Culturally, that puts us somewhat at odds with many other developed countries. Take, for example, our near European neighbours in France and Germany. No one really considers buying property there until retirement (possibly) whereas, here in the UK, home ownership is seen as one of the key indicators of a "successful" life. Australians are too busy spending their money enjoying life rather than sinking it into ‘stuff’ whilst our cousins in the USA would raise a Vulcan eyebrow at our determination to pay cash for everything.
Wrapped up in our cultural insecurities around finance is also a great deal of ignorance and misinformation which prevents businesses from doing anything other than paying for assets in cash.
Partly this is the fault of the wider finance industry. For too many years, too many supposed experts have cloaked the relatively simple concept of leasing in a mantle of techno-babble and confusing small print. Hardly surprising then that those responsible for making financial decisions in a business, self-confessed non-experts in this dark art of leasing, at best approach it warily or, perhaps, not at all.
We’ve worked hard at Bluestone Leasing to over the years to do the exact opposite – to demystify the mechanics, to present the offer in a clear and easily understood manner and to employ ethical and transparent paperwork throughout. There is clearly much more for us and others in our sector committed to these principles to do.
Awareness of alternative finance products, and indeed providers, is another factor. Survey data has consistently shown that, outside of standard overdrafts, bank loans and credit cards, most businesses are simply not aware of other financial products.
We see this every day at Bluestone. Our Interiors division specialise in financing the interior fit out for companies looking to relocate or refurbish their existing building. They are almost always surprised to learn that they can pay for their workspace much like they do their building, on a lease and spread over time. When they go on to learn that they can often also include all their costs (including labour and fees) and save significant amounts of tax too, they are amazed.
Fear and ignorance are not exactly great motivators for changing behaviour but how real are those fears?
It can appear that way but it really is quite straightforward. Choose a professional advisor, not just one that specialises in asset finance, but one that gives you confidence that they know their onions and is able to articulate the concept clearly and comprehensively. If you come away from that call or meeting still scratching your head, choose again.
Too often clients are fixated on a rate, APR or cost in isolation. Although what you will be paying back is important, try to look at the bigger picture and factor in all the benefits that you are getting that you might not get with either cash or, let’s say, a bank loan. Tax savings, the ability to spread costs and the VAT and the opportunity cost of using cash to name just a few.
You’ve got plenty of cash? Now how about making that cash work for you instead of sinking it into depreciating assets that only return value over time? Take a look at the list of clients on our website and you’ll see there’s a reason why 97% of FTSE top 250 companies use leasing. Ultimately it is less about how much cash you have and much more about how well you use it.
Asset finance is a specialist area and, put bluntly, not a forte for most high street banks. An established asset finance business of reasonable size should be able to provide access to a myriad of alternative funders for you all focused on this arena – just make sure that they are truly independent so that they take a whole of market approach and don’t just offer their own, in-house funding.
In our case, the panel is now in excess of 50 and over two thirds of our funders are not accessible to you directly. At the very least, you should compare what your bank can offer against these alternatives.
Finally think carefully whether or not using one bank exclusively for all your finance needs is sensible for you. Consider the idea of spreading your risk and retaining those credit lines with your existing funder(s) for when you need them.
The reality is that it is actually quite rare to find someone who doesn’t use some form of finance in their daily life. Aside from the usual suspects (property and cars), we are all surrounded by finance agreements. From the ubiquitous mobile phone contract, through to digital media subscriptions (Sky, BT, Netflix, Spotify, Amazon, Apple etc.) and even home insurance, all are rental agreements where an element of the amount we pay covers the cost of funds, or interest to you and me.
Suppliers work hard to hide these fact from us (that £2,500 interest-free sofa is really a £2,150 sofa with the interest built in) because they too recognise our cultural hang ups. In business, look at how many things are now being offered on a subscription or “as a service” model.
Admittedly, slowly and generationally, attitudes are changing. As already mentioned, the principle of subscribing to all manner of services is increasing popular and demand driven, which is a good indication that attitudes are shifting.
The truth is that you cannot decide whether finance leasing is the right choice for your business until you understand it, and this is something Bluestone can help you with. We can analyse whether or not the numbers stack up, match commercial requirements to available funders and terms, and even do detailed tax comparisons of using capital versus choosing to lease.
Most of the time finance makes complete sense but, there are occasions when it doesn’t. However, you can rest assured that if finance leasing is not right for your business, we will be honest and transparent about it. We have no interest in arranging finance deals that will not benefit businesses both in the short and long term.
Like many things that, on face-value, look sinister, once you take a proper look and understand how they work, you realise there is nothing to be scared of. When you work with a finance broker who not only helps you to understand finance leasing, but also empowers you to make the best possible choice for your business, finance leasing holds no real monsters.
If you are a business owner wanting to invest in assets while keeping cash in your business, get in touch today. We can help you to decide if it is the right financial move for your business, and if it is, we will help you understand how taking out a finance lease could benefit your business both in the short and long term.
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