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Paragon Bank Discuss Finance Options

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As technology evolves and the boundaries continue to blur between the worlds of audio visual and IT, I'm increasingly asked by suppliers to facilitate 'payment plans' enabling the customer to budget for the use of kit in a way similar to how they pay for their phone or Sky subscription, says Samantha Arlow, Divisional Director at Paragon Bank Technology Finance.

Therefore, I thought this would be a good opportunity to run through some of the different types of finance available, explain how they differ, and the benefits of each.

Currently, the most popular way to spread the cost of capital investment is via a 'Lease Purchase' or 'HP' agreement. This gives the buyer (or lessee) the means to acquire full ownership of the equipment over an agreed period of time at a fixed periodic cost. Balloon payments can be included at the end to reduce the regular periodic payment and title in the equipment will pass to the buyer once all agreed payments have been made. The buyer will choose the supplier and negotiate the purchase price, and will treat the equipment as his own in his accounts and pay all insurance and maintenance costs. With technology changing so quickly, if the buyer would like some flexibility with regard to either keeping the equipment long term or upgrading it in the future, then a Lease may better serve his purpose.

There are several different types of lease, but in all cases, the buyer pays a periodic 'rental' for the use of the equipment during a fixed period with the option to either return the equipment and pay nothing further, upgrade/change the equipment or rent it a bit longer. He may even be able to purchase it at this point depending how the lease has been structured. The monthly rental can include installation or maintenance charges as well as use of the kit, and VAT will be charged on each rental.

There are other technicalities, but in some cases an RV (residual value) may be applied, making this a cheaper option than an outright purchase – which can be useful if you expect technology will change during the term of the lease and you'll want to change with it.

Each of the above are fairly well known options, but another contender is the managed services contract. Here, the customer enters into an agreement where the supplier is providing a service which may include equipment. The equipment is defined by specification not by individual assets, which could be replaced by the supplier over the course of the contract.

This is a similar approach to mobile phone contracts, which are often very paper intensive because the service has to be accurately defined, along with how variations and breaches will be dealt with. Given the assets are not individually identified and ownership is never intended to pass this this can make the managed service an off balance sheet operational cost.

If you think this type of finance could work for your business contact for further information.

This article is also available to read at BFV online here, page 47.

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