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Industrial Equipment Finance

Transforming Industrial Equipment Financing for the Future

Technology is rapidly changing in the industrial world today, and user needs continue to grow. Keeping pace with technology, continually improving service to clients and improving operational efficiency has become a complex issue.

It is against this background that specialized financing has become more and more a factor of industrial and technological equipment usage. Existing methods of financing, although adequate, have not addressed the problems incurred in a continually changing market. In order to address these problems, the emphasis has changed from “What it would cost to buy” to “What it would cost to use?”

It was to answer this question that RENEWED was developed and introduced to the industrial and technological markets.

Traditional funding techniques increase your debt, tie up your lines of credit and are treated as capital expenses; furthermore, they leave your company with obsolete equipment at the end of the term. We provide multiple services across all asset types and are committed to delivering a totally professional service and developing customers for life.

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What you need:
  • A completed & signed credit application form.
  • Pro-forma supplier invoice or quotation.
  • Full description and/or brochure on asset.
  • Copy of ID of directors.
  • A Company letterhead.
 
  • Copy of company registration documents.
  • Personal assets & liabilities of directors.
  • 3 months bank statements.
  • Latest Audited Financial Statements.
  • Up to date Management Accounts.

Core Considerations

When making equipment and technology acquisition decisions you must consider the following:
  • Will you have the capital budget you need to replace your equipment when it needs replacing?
  • What is the true cost of capital or other funds that are required to finance both the acquisition and operation of your equipment?
  • What is the opportunity cost of committing your capital to depreciating assets with diminishing life cycles?
  • What will your equipment be worth at the end of its useful life?
  • Will the cost of disposal be greater than the value of the assets?

Main Benefits of a Rental

Tax Benefits
  • Rental is 100% tax deductible as an operating expense
  • VAT is paid monthly on rental premiums
  • Reduce your nett taxable income
Off-Balancesheet Financing
  • No long-term liability
  • Does not affect current gearing and exposure
  • Only reflect in income and expenditure statement
Budget Purposes
  • Part of opex budget – not capex budget
  • Less budget constraints
  • Usually no deposits
  • No cash drainage
  • Improved cashflow
Upgradeability
  • Client can upgrade equipment without capital constraints
  • Keep up with current technology and improvements on equipment

Salient features of a Rental Agreement

End of Term Options

At the end of your rental term you have the following options:

  • Continue to rent the equipment on a casual basis at the same rate
  • Re-negotiate a new term on the existing equipment at a discounted rate
  • Return the equipment and upgrade to new equipment
  • Hand back the equipment with no penalty or residual payment
  • Buy the equipment from RENEWED

Payment Structures

RENEWED understands your need for flexibility, therefore, multiple payment options exist:

  • The Regular Rental Plan, which operates with even monthly or quarterly payments (0% escalation) through the term, which allows you to develop a planned replacement strategy with pre-determined operating cash flows.
  • The Escalation Rental Plan is a flexible alternative, which sets an annual escalation of 5%, 10%, 12% or 15% in place to maximize budget planning in your organization.

Tax Effects

Rentals are 100% tax deductible as an operating expense. The budget is therefore not affected by Capital Expenditure constraints and allows the user flexibility to upgrade within the rental period, or within a fiscal year.

Value Added Tax is not capitalised on the agreements but paid monthly on the rental. This provides valuable savings at the time of upgrade as VAT is only paid for the period the equipment is in use.

Escalation

Normally an escalation rate of approximately the expected rate of inflation is built into the rental structure in order to reduce the cost to the user of a particular system and has important ramifications.  It takes into account that when considering future rentals, inflation will erode the value of money (the most expensive money is today’s money), thereby keeping the payments equal in real terms measured today.

Use and Enjoyment

The Rental concept allows the full use of the equipment, but does not confer right of ownership. A “Rental” may be defined as the uninterruptible use of equipment for a period of time at an acceptable cost to the user.

Through careful planning, our client can enjoy the full use of the equipment at the lowest cost possible. Our intention is to always provide the most cost efficient structure at the lowest possible rental.

Accounting

As rental is an operating expense, it is not reflected on the balance sheet, rather it is shown as an operating expense in the income and expenditure statement.

Terms

This can vary, but a five-year agreement is the norm – 12, 24, 36 & 48-month periods are also available.

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