Picking a partner

The financing of forklifts can be a tricky business. Here, DLL offers some guidance.

Spread the cost

Finance provided by an equipment manufacturer can give your business access to the very latest equipment, by spreading the cost over the optimum life of the equipment.

The type of finance you may choose will depend on a number of considerations, including whether you like to own the equipment or you are happy to simply pay for its use. This decision may have an impact on tax and VAT treatment and you should seek professional independent advice in this regard.

Generally speaking, you get what you pay for and so to avoid risks, it is always best to use a credible dealer who has experience and knowledge of the most appropriate finance route to take.

Contract or HP

Contract Hire is by far the most popular form of finance when a new or used forklift truck is needed. It provides all the benefits of use, without ownership. Maintenance can be included and the terms tailored to suit your business requirements.

You may be able to offset the monthly payments against taxable profits, reducing the tax your business pays. If your business is VAT registered it can reclaim 100% of the VAT if it is used exclusively for business.

Contract hire is a form of operating lease, classified as “off balance sheet”. This may result in accounting benefits as it improves the financial ratios (gearing) for a business.

Hire purchase is beneficial if you wish to ultimately own the equipment. At the end of term, you will be entitled to exercise an option to buy the equipment.  Once you become the owner, there are no limits on the use of the equipment, its maintenance regime,  or the length of time that you own it. If you do not want to purchase the equipment at the end of term, you will return it and other options (a newer model) may be available.

If ownership is a priority, even though the business will not own the vehicle until the option to buy is exercised, hire purchase may be a cost effective method of financing.

There are general tax benefits when using hire purchase. With hire purchase, the equipment is classified as an asset, therefore the tax depreciation can be written off against taxable profits.

Businesses may be able to claim tax relief on the interest charged across the period of the hire purchase term.

Avoiding pitfalls

When deciding whether to rent or purchase, it’s important to understand how frequently your business replaces its equipment. If you tend to keep your equipment for seven years or more, then purchasing either outright or through hire purchase may be the preferred option.

If you use the truck(s) extensively, the reliability of the equipment will also be important to you.

Sourcing finance

Unlike financing from banks, asset finance does not generally require any additional security as the main security is that the asset finance company owns the asset.  

As banks rarely work with vendor partners, asset finance may provide the perfect solution by offering flexible products and agreements tailored to the customer. The convenience of being able to arrange finance at the same time as acquiring a truck, also makes it an attractive option.

The materials handling market is extremely competitive. The availability of finance itself is an important sales benefit that larger manufacturers can pass on to customers: being able to use a truck by making rental payments that best suit a customers need.

Understand your needs

This is arguably the most important factor when entering into a finance agreement. Essentially establishing what you need the equipment for, where and how it will be used and for how long, will allow a dealer to be able to advise you on the best finance agreement, tailored to suit your business’ needs.  

Flexibility

Flexibility within your agreement can complement your business needs. Whatever your circumstances, asset finance provides a lot of flexible options. Those options include a final lump sum, or balloon payment to reduce your monthly payments, or even having your payments tailored to mirror your cash flow. A good equipment dealer would be able to help you find the best combination.