The costs of setting up a glamping site, and equipping it with, for instance, glamping pods can be considerable. Such costs need to be met before the site can even start trading, let alone cover its costs, so most prospective owners will need some source of finance to deal with them.
In this, we continue to look at possible finance arrangements, this time looking at finance lease arrangements. Similar information about hire purchase and commercial loan options are here.
What is Finance Leasing?
A finance lease agreement is an arrangement where a finance company provides funds to purchase the asset – the glamping pod – and then rents it to the user – the site owner. The site owner benefits from not needing to capitalise the purchase and will continue to be able to use the asset. It will show as a notional asset, so changes of its value will be on the site operator’s balance sheet, but it will technically remain the property of the finance source.
At the end of the agreed period, the agreement transitions into a secondary rental period. This means that the frequency of rental payments or their amount will reduce. The site owner may wish to take legal ownership of the pods. If so this is negotiated by a broker.
What are the Advantages of a Finance Leasing?
- Fixed payments. Once agreed the level of the repayments remains the same.
- Pay from revenue earned. The ongoing payments are treated as revenue, and therefore tax-deductible as an expense. The cost of repayments counts as a revenue item.
- VAT is charged on each payment, not on the first instalment as in hire purchase. In hire purchase deals the whole VAT on the purchase is placed in the initial deposit. In finance lease arrangements that VAT is divided amongst all repayments.
What are the Disadvantages of a Finance Leasing?
- Early settlement costs more than hire purchase. If the agreement comes to an early settlement you may face a final payment equal to the remaining instalments.
- Transfer of title of ownership has to be done through a broker. Often with a finance lease, the ownership technically remains with the lender at the end of the period, with either a peppercorn rent or single payment being arranged. If the site owner wants to take legal ownership of the pods this has to be negotiated through a broker. Clearly that broker must be carefully chosen!
How Costly is the Finance Lease for Glamping Pods?
Although the interest level of a finance lease is likely to be comparable to hire purchase, the VAT element is spread through all payments, not loaded into the first deposit.
Is a Finance Leasing Right for My Site?
If you are looking for finance just for pods (not land and development costs), and want a predictable monthly payment you can budget into your site’s revenue, then a finance lease may be worth considering. Be careful when you approach the end of the agreed period that you get good advice on how to continue, whether it is better to continue renting the pods or take them into ownership.
