Lease financing for imported equipment and machinery

A form of asset finance, lease financing for imported equipment and machinery can be arranged easily when the item is delivered and in the UK.

The origin of the equipment or machinery, (China, USA, Germany, etc), does not matter, nor does the value.

Any value and origin combination can be lease financed.

The issue financing imported assets:

The lease financing for imported equipment and machinery cannot start until the item is in the UK; the asset must be UK owned.

Whilst the asset finance can be arranged ready for the equipment or machinery to arrive in the UK, the issue you’ll encounter is you’ll have to pay the deposit. That deposit cannot be asset financed until the asset is in the UK.

Machinery and equipment deposits can range up to 50% of the asset value and payable up to 120 days in advance of shipment by the export manufacturer.

The issues are therefore:

  1. A cash flow issue for the UK importer as the deposit money is no longer available to fund the day to day business; and
  2. A barrier to sales for overseas exporters of machinery and equipment unless they self finance and reduce margin or find local supply chain finance in their own country against the strength of the UK importer’s company and order.

There is a simple solution.

A simple solution is to finance the deposit:

There are a number of finance methods that can be used to finance the deposit prior to the lease financing for imported equipment and machinery taking over.

However, in our opinion, the simplest and cheapest method is to use deposit finance.

The process is:

  1. A UK commercial finance provider agrees to finance the deposit amount;
  2. At the same time, our Firm arranges the lease finance with an appropriate lender who finances the specific type of equipment or machinery;
  3. That lease finance provider agrees to buy the imported asset from the deposit finance provider, or UK importer, on the “day” the asset is delivered to the importer in the UK;
  4. Asset is imported and delivered to the UK importer;
  5. Lease financing for the imported equipment and machinery starts by the asset finance provider “purchasing” the imported asset;
  6. Deposit finance is repaid; and
  7. UK importer leases the imported asset for the agreed finance lease period.

Finance cost Vs opportunity cost:

Each import contract is different but the principles of deposit finance above will work. It’s is the timing, with our assistance, that needs careful planning to minimise finance costs.

Assuming the export manufacturer accepts documentary credit or other obligation to pay by the deposit finance lender at the date of shipment, then the deposit finance will only cost the importer between 1-3% of the deposit value.

Compare this to the opportunity cost of the loss of use of working capital to your business if the entire deposit is paid and not recoverable until the lease financing for imported equipment and machinery starts. In our experience this averages 20%.

Lease financing for imported equipment and machinery:

The cost of lease financing in the UK ranges from 6-12% per annum depending on the type of asset, asset value, deposit and credit worthiness of the importer.

Terms are typically 3-5 years.

For more information on the various types of asset finance, click here.

To discuss import deposit finance and/or lease financing for imported equipment and machinery, contact us for an informal, no obligation, chat.

Further information you might find useful: