Background

Our customer requires lease finance to supplement other banking facilities in order to achieve an ambitious growth strategy. New shop fits and existing store refits form part of this strategy and all those projects, without exception, have been funded by Key Finance.

We have completed over 300 similar projects with this customer. We also work in conjunction with them to offer lease finance for shop fits to all of their franchisees.

Our Project-Based Lending (PBL) tool has been particularly successful for the customer as they are able to use the facility to provide an additional service to their franchisees for the lease period, all whilst maintaining tax advantages/benefits.

The customer also uses PBL to finance larger commercial projects, such as refits of warehouses and distribution centres.

How PBL Works

This study details a live deal funded by Key Finance. The purpose will be to demonstrate different funding criteria in the market and the attributable tax savings.

The charts below show the breakdown of assets in a typical deal.

In this recent transaction the lease agreement was for a five-year period relating to a project with total costs of £667,000.

18% of the total is identified as ‘Services’ (including logistics and installation fees) and a further 25% of ‘Hardware’ is labeled ‘Other’.

Most leasing solutions would start by identifying and removing all these soft costs. In this instance, that would result in 34.5% of the project cost being excluded from funding. That’s £230,000 that would not be funded and which would not have a positive balance sheet and tax relief effect.

Leasing companies who operate ‘Asset Based Lending’ would search the asset schedule looking for equipment that would help them recover losses through the residual value.

Key Finance sees this differently. If our customer’s credit is good, there is no reason not to fund the entire cost of a project – hence ‘Project-Based Lending’.

The Solution

Working closely with our customer, we are able to fund 100% of their project costs, every time. We ensure that sufficient facilities are always available so that our customer can make decisions and take on new projects with total confidence.

In any given year we fund over £10 million with this customer, and Key Finance can provide all the administration support required as part of such a significant relationship.

The table below sets out the funding arrangement for the schedule, according to five different criteria. As you will see, we believe that our PBL approach is the only solution that will cover 100% of the project cost.

The five funders can provide widely different results. Numbers 1 to 4 are interested only in providing a facility that suits their internal policy. Key Finance aims to provide a solution based on our customer’s requirements. We also work with a panel of banks who back our approach.

In this particular example, we are also working with all divisions of the company to support and advise on their growth and financial strategies.

Corporation tax came down from 20% to 19% in 2017, and then to 18% in 2019.

Our customer did not have to fund the £230,000 difference, which represents the soft costs that traditional Asset-Based Lending will not fund.

Instead, by using our PBL solution, they had the £230,000 to reinvest in the business.

Reinvesting in stock or new products/services can bring your company at least a 10% increase in profit.

Our customer is happy to provide references and we would be delighted to provide more information on this case study, and other finance agreements we have provided.

To find out more, call us on +44 (0) 1372 888 330 or email info@keyfinance.com.