Imported machinery finance and equipment financing
Most businesses will consider using Asset Finance for imported machinery finance and equipment financing.
Asset finance is generally the correct choice for any business wishing to spread the cost of a machinery or equipment purchase over 3-5 years whilst enjoying the revenue or benefit of “ownership”.
However for importers there are some significant problems to using asset finance but a little known yet simple solution.
If you import equipment, machinery or plant into the UK and think you might require finance support now, or in the future, continue reading.
We’ll cover everything you need to know about imported machinery finance and equipment financing, from the moment you agree a supply contract overseas to commissioning in the UK, below…….
Imported machinery finance and equipment financing – the problems:
Problem 1-Item must be in the UK:
Any UK asset finance company will want the equipment or machinery physically in the UK, delivered to the importer, before they will agree to finance the purchase.
Problem 2-Deposits not covered:
For significant value purchases most overseas suppliers will want a deposit of between 10-50% for any machinery or equipment that requires manufacturing or assembly to order. Asset finance won’t cover this.
Problem 3-Payment on shipment, not covered:
When ready to ship to the UK most overseas suppliers will want full or the final payment before it leaves their country of origin. Asset finance won’t cover this.
These problems mean that as an importer you can’t use asset finance for the import phase of imported machinery finance and equipment financing.
So you’re options to fund the import phase are to use:
Imported machinery finance and equipment financing – Import problems solved:
The simple solution to the above problems using asset finance for the import phase is to use import asset finance bridging as part of the overall finance of the supply chain.
Import asset finance bridging - How it works:
Using import asset finance bridging as part of the overall imported machinery finance and equipment financing works as follows:
- Importer agrees the Supply contract with their overseas export supplier;
- UK asset finance company agrees, in principle, to finance the machinery or equipment upon delivery in the UK;
- Import asset finance bridging lender purchases the machinery or equipment from the overseas supplier in its own name;
- Import asset finance bridging lender arranges shipping, clearance and delivery to the UK importer;
- UK asset finance lender buys the equipment or machinery from the import asset finance bridging lender. This pays off the short term asset finance bridge finance;
- UK asset finance lender then “supplies” the machinery or equipment to the importer under a 3-5 year lease or HP agreement.
Imported asset finance bridging - Pros & Cons
For imported machinery finance and equipment financing the use of import asset finance bridging is simple and straight forward.
The importer gets to to use asset finance whilst, for a small fee, preserves own working capital and cash flow during the import phase.
However there are some Pros and Cons:
All parties, importer and finance companies, are involved from day 1, understand the importers needs and have a vested interest in financing the machinery or equipment.
This guarantee of payment provides you with some unique advantages:
- You can probably negotiate a single payment at delivery and hence avoid paying a deposit
- UK asset finance of the machinery or equipment is therefore out of new profits not existing working capital
- You can negotiate better unit prices & discounts with your supplier as they know they will get paid on shipment
Since the import asset finance bridging lender buys the equipment in their name, and the UK asset finance company has already agreed to purchase the item from them on delivery in the UK, then security for the bridging finance is usually just a personal guarantee (“PG”) from the import business Director(s)
Importer does not have to use own working capital to fund the import phase which can be up to 3 months.
Because the import asset finance lender only requires a PG from the Director(s) rather than formal charges over the import Business, the finance can co-exist with all existing business finance.
Also no permission or waiver from existing finance charge holders is usually required.
Apart from the UK Government & HM Customs imposed controls, bans and quotas the import asset finance bridging finance can be used to finance the purchase of any type of machinery or equipment, of any value, from any origin.
Whatever payment method is agreed with your overseas export supplier the import asset finance bridging lender will pay that supplier direct.
Therefore your business will not have to worry about converting sterling into your suppliers local currency, risking losses as exchange rates alter between supply and sale, operating separate currency accounts or getting involved in currency hedging.
As the import asset finance bridging lender relies upon the agreement of the UK asset finance company to effectively repay their short term bridging loan to the importer, asset finance must be involved.
Asset finance is not the solution a wholesaler, re-seller, distributor or eCommerce dealer would use to purchase stock.
Import asset finance bridging adds about 3% to the overall imported machinery finance and equipment financing cost.
However what needs to be assessed is the opportunity cost of not using your own working capital to fund the import phase of up to 3 months duration.
What profit could you make with that working capital in that 3 months?
As the lender pays your supplier direct you will have to provide them with details of the purchase order and they will have direct dealings with your supplier.
Whist minor, this does introduce a 3rd party into your supply chain.
Imported machinery finance and equipment financing - Frequently asked questions:
Imported machinery finance and equipment financing - FAQ's:
Do you need to be a homeowner?
No. Security is taken over the machinery or equipment to be imported and when imported , and in most cases no formal charge or security is taken over your import Business. Security is usually just a PG.
Can import asset finance bridging be used without UK Asset Finance?
Yes. The lender requires a confirmed exit for their short term bridge finance. Whilst an agreement from a UK asset finance company is the norm a confirmed PO from your UK customer for the machinery, plant or equipment to be imported will be acceptable.
Is the solution just for financing imports?
Yes. The import phase is the problem for importers of machinery and equipment. If you’re buying from a supplier in the UK then you can arrange Asset Finance direct from the outset.
Who arranges the Asset Finance?
Your choice. Our Firm has 24 years international expertise and as a whole of market independent commercial finance brokerage focused on imports we can arrange the entire imported machinery finance and equipment financing.
The process we take you through and our relationships with the entire finance supply chain means we handle all Applications and negotiations with all lenders in the supply chain.
However, you are free to use your own UK asset finance company if that relationship already exists.
How does the lender pay my overseas supplier?
Some import asset finance bridging lenders only use Letters of Credit, (“L/C”), whilst others offer both L/C and “cash” by bank transfer in local currency.
In addition to the payment guarantee that either payment method offers to your supplier, an L/C method allows your supplier to raise local supply chain finance for the components or commodities needed to fulfil your order. (A further negotiation opportunity as your supplier does not need to use working capital to fulfil your order, but can leverage local finance money).
Can I draw the money myself and pay the supplier?
No. As the security is the item being imported all forms of imported machinery finance and equipment financing rely on the supplier being paid direct by the lender.
My Business already has finance. Is that a problem?
Depends. Whilst asset finance is secured on the machinery or equipment imported the lender will want to satisfy themselves that you can afford the monthly lease or HP repayments. They don’t really want to exercise their right to seize the item and sell it if you default.
Regarding the import asset finance bridging element of the import phase their security is the agreement of, and exit to, the UK asset finance lender so they are less concerned about your current business finance obligations.
Is poor credit a problem?
Possibly. It will depend on the type of credit default, how recent, what value, personal or Business and what for. Then all that information would be compared to imported machinery finance and equipment financing level requested.
We consider all this as part of our initial process and IF it is likely to be a problem we will tell you at the outset and/or find alternative solutions or improvement strategies. A “no” is never no forever!
I’m a Sole Trader who imports, can I apply?
Yes. Some lenders will deal with Sole Traders. We deal with all providers & lenders of a imported machinery finance and equipment finance including import asset finance bridging.
So if your Business is credit worthy and your proposed import trade viable we will be able to source a lender for your Business.
Can the solution be used to finance any type of machinery or equipment import?
Yes. As both asset finance and the import bridging if required are approved before you import.
Can the finance be used to pay my freight, duty etc.?
Yes. The import asset finance bridging lender will pay all shipment and clearance costs to deliver the equipment to you in the UK.
They own the equipment for the import phase which is how they can agree their exit via the imported machinery finance and equipment financing lender.
What are the costs and charges?
Imported machinery finance and equipment financing are traditional types of asset finance at average interest rates of 8-12% per annum.
Import asset finance bridging will add a further 3% of the purchase price of the imported machinery or equipment.
What is the maximum period of finance?
Asset finance contracts are typically over a 3-5 year period.
The import asset finance bridge element will be just for the import phase which is usually 1-3 months.
We hope you have found this review of a imported machinery finance and equipment financing including the simple solution of import asset finance bridging useful.
If you think it would be a solution for your Business now, or in the future, please contact us using the forms on this page to arrange an informal, no obligation, discussion regarding your Business, ambitions, the proposed trade and your unique circumstances.
We’d love to hear from you.