Eight Flashcards
Additional Advantages of asset finance over a loan?
- Largely or wholly secured on the asset being finance, no need for additional collateral
- There’s more security for the user because the loan cannot be recalled during the life of the agreement
- Offers flexibility because businesses have the option to replace or update equipment at the end of the lease period
- Widely available through a network of around 5000 equipment dealers and 400 brokers as well as direct from
- Asset finance may be a good way to blend lending amongst loan, overdraft and asset finance
- Overdraft can be removed on demand
- Fixed rental better for budgeting
- Lessee does not carry risk of obsolescence
- Exchange clause = lessee can regularly upgrade the equipment
Advantages for lessor of asset finance?
- owning the asset may be preferable than taking security on say land and buildings which can be expensive to arrange and to enforce
- The profit margins may be greater than with other forms of financing
- Captive it can be a great way of boosting sales
What is Back to Back finance
Where the bank is short of funds but wants to keep its customer relationships and maintain its lending.
The bank could act as an intermediate lessor in a back to back structure, leasing the asset from a head lessor and sub-leasing to an end user.
What is Sale of Receivables?
- It is selling the customer payments due under a finance agreement.
- Normally used to manage credit exposures rather than to gain capital. If over exposed with a customer for example.
Normally on a non-recourse meaning buyer takes the liability and risk of non-payment.
What is block discounting?
- Used by smaller independents, block is provided by larger bank owned asset finance providers
- Method to release capital invested in finance agreements, in the form of an advance against the pre-agreed value of the contracts
- The advance will usually be repayable over the average term of the underlying agreements
- Known as block of agreements used and can have it with several funders.
- Typically 80%
- Still managed by the independent
- If default then bank takes over on facilities from the independent
What are the British Business Bank schemes example?
Schemes are designed by government and delivered by British Business Bank
- Bounce Back Loan Scheme = first 12 months free interest
- Coronavirus Business Interruption Loan Scheme - CBILS loan scheme - great for short term lending requirements
- Future Fund - assisting early stage start ups
will provide convertible loans to UK-based companies ranging from £125,000 to £5 million, subject to at least equal matched funding from private investors. - ENABLE - to incentivise more lending It is a form of guarantee for a government-backed portfolio guarantee to cover a portion of a designated portfolios
How did they solve the issue about CRA for smaller lenders
- Small and Medium Sized Business (Credit Information) Regulation 2015 - allowing smaller banks to have the same access as the larger banks.
- Involves Experian, Equifax and Creditsafe initially
Additional forms of security?
Legally binding Financial Covenants. Charge over other non-financed assets. Assignment of sub-hire agreements. Landlords Waiver. Debenture Holders Waiver. Mortgagee Waiver. Floating Charge Holders Waiver. Third party asset buy-back agreement for operating lease assets.
What are the roles of the FCA?
1) Statutory Body, overall responsibility for UK financial services industry - wholesale and retail and financial markets
2) Supervises conduct of financial services firms (11 Principles for Businesses), promotes
effective competition and protects consumers interests.
3) FCA also provides prudential supervision of firms not supervised by the PRA.
4) FCA rules, regulations and guidance are contained in FCA Handbook, enforced via statutory
powers.
5) FCA related areas that apply to all asset finance providers are CCA regulated agreements
and regulation of credit brokers as intermediaries
What are the roles of the PRA?
- Part of Bank of England, responsible for prudential supervision / financial soundness of
systemically important banks and insurance companies. - Parent banks of bank - owned asset finance providers will be regulated by PRA.
- Independent and captive asset finance providers are not regulated by PRA.
What is the role of the FLA?
- Trade association for asset finance, consumer and motor finance providers - membership is
voluntary and open to all asset finance providers. - All asset finance members must comply with FLA Business Finance Code, sanctions for non
compliance include expulsion from FLA membership.
