Swimming With Sharks And Avoiding Future Scars (Pt II)

So the question from Part One was, "Are there sharks in finance and can they be bad for my business?", recalls Samantha Arlow, Divisional Director, Paragon Bank Technology Finance.

You will recall that last time we answered the following questions to keep you safe:

1. Where is the money actually coming from?

2. What is the full cost of the finance?

Now we shall continue to keep you swimming safely.

3. Will I own the equipment at the end of the agreement?
This will of course depend on whether or not you want to. If you do, make sure that the agreement you sign stipulates exactly what the 'option to purchase' or 'transfer of title' fee will be. You could find that instead of paying an additional cost to own the equipment, you are paying an additional cost for continued future use of the asset.

However, this doesn't mean you own it and could mean that if you later defaulted on another agreement from the same provider, they could also repossess assets you have already repaid in full. So be clear at the outset, ask what happens at the end of the term of the agreement and make sure that you obtain written confirmation before signing.

4. How flexible is the agreement?
Check that you can make overpayments or settle the agreement early should you wish, without penalty or early settlement fees. Otherwise you may not benefit from interest cost savings should you later have the ability to pay off the agreement early, or wish to sell the equipment.

And finally, not the nicest thing to think about, but vital:

5. What happens in the event of a default?
This is possibly the most important question to consider. Nobody likes to think things will go wrong, but unfortunately in some cases they do.

Whilst it's a given that any finance secured against an asset will see the asset repossessed, it is also worth noting that most finance providers will also seek to take additional security, often from the directors of the business, to safeguard against any shortfall after sale of the goods.

Therefore, a funder that fully understands the marketplace and the value of the asset will make the resolution of a situation like this far less costly than one that hasn't got a pre-arranged plan for the resale of the goods, or considers them to hold very little value. The sharks will circle and hunt in packs if they see an opportunity.

Conclusion
By entering into a finance agreement, you are entering into a legally binding contract. Therefore, you should do so fully aware of the terms of the agreement and with a provider that understands and can meet your needs.

So, listen to recommendations. Use a specialist funder within your industry and keep these top tips in mind to ensure asset finance is only GOOD for business!

Come and talk to the experts at Paragon Bank Technology Finance next time you are unsure.

www.pbtf.co.uk

This article is also available to read at BFV online here, page 17.

The first part of this editorial can be accessed here, page 44.

(JP/LM)