So, you are a glamping site or a prospecting site that are in need of glamping pods. If you are a well financed site, with a big cash flow and large amounts of disposable income, buying pods will be no problem for you. For glamping sites that are not cash-rich this can be a large obstacle in their way if they want to grow as a business. There are always new trends around the corner and there is always room for improved equipment in your site. For these types of glamping businesses, there is an option of financing or leasing your glamping pods.
Financing is used for two purposes generally, cash flow and equipment acquisition, this is perfect for those who are wanting to finance glamping pods and grow their business. Here is the complete guide on how to finance your glamping pods, the main types of financing and what will be required to complete this process.
Finance leasing is an agreement for equipment hire for a fixed term at a fixed rate. An investor would essentially choose an equipment supplier as well as deciding what specification and what price to hire it at. The financing company, or, the lender would then purchase the equipment on the investors behalf and hire it to them for this fixed term and rate agreement.
To make it relevant for our readers, a finance company would purchase the glamping pod(s) that the glamping site owner has decided on and rent it to said glamping site owner.
As a result the glamping site owner would not own the equipment and therefore it would qualify as an operating expense and is legally the property of the company who is financing the glamping pod(s). This expense can be deducted from taxable profits, effectively reducing the amount of tax paid.
At the end of the agreed rental period the agreement transitions into a secondary rental period, this transition leads to the renters payment amount reducing greatly. This however is not the only option, the renter can also elect to take the title of the equipment, usually at a payment of one months rental. The transfer of the title is not done directly with the lender; Legally, the lender needs to invoice a nominated third party for the transfer of title payment.
Settling your finance lease early is generally not recommended, you may end up having larger payments over a shorter period of time plus an early cancellation fee.
Is a Finance Lease Right for You?
If you are financing glamping pods and are looking for a fixed payment which will allow you to budget into your glamping sites overall cash flow, then a financing lease may be your best option. (Link to Finance Blog – Not up yet). If you are also unsure of whether owning your glamping pods after the agreed term is what you want, then this type of financing will allow you to continue to rent.
Hire Purchase Financing
Hire Purchase is essentially a hire agreement on a fixed term basis, but you have also agreed to purchase the equipment from the outset. As soon as the agreement begins you will be treated as the owner of the equipment, in this case glamping pods, and it will appear on the asset register. This will then be depreciated according to the companies accounting policies.
With this method of financing, you will be making monthly payments over the agreed term and VAT is paid with the deposit in the first payment. This can occasionally cause a cashflow issue if the date of purchase is a long time before the next VAT return is due. However, during the monthly payments no VAT will be charged.
As you will be paying interest with your payments it is important to note that the interest portion of the payment can be expensed, reducing tax. You can also claim depreciation of your glamping pod assets against the liability over the life of the pods you will be financing. This means that over the course of your financing term the interest payments will decrease.
When the term ends there will be a transfer of title fee which can usually range between £175.00 to £250.00 plus VAT, however it will be dependent on the Lender. Here it is possible to settle an early Purchase agreement which could be beneficial to you, the renter. If you manage to agree on an early settlement the lender will calculate the outstanding interest and fees and will advise a final figure.
Is a Hire Purchase Right for You?
If you believe you will have the opportunity to end the agreement term early this will be a cheaper option than if you went for a Finance Lease on your glamping pods. If you also have the aim to purchase this equipment from the very start this is a key choice for financing for your glamping pods.
The Application Process
While these processes may seem long winded, hiring a good broker will help you through this process. We understand no two applications will be the same and in the case of new start up glamping sites some of this information will not be available.
It’s important to realise that the information you will give will be all that the potential lender will have to judge you and your business. They will then decide whether your business is a good or bad risk. Confidence is key for all glamping site prospects when presenting their business ability to lenders, this can show off their capability to grow as business. However, refraining from giving out information may lead to the lender rejecting your application.
- Personal Information
Passport, Driving License, Utility Bills. This is to let the lender verify who they will be dealing with.
- Company Accounts
If the annual accounts are over six months old then you will need to provide your most recent as well as management accounts.
- Bank Statements
Three months’ recent statements – Don’t worry, the lenders are not looking specifically for your bank balance! They specifically look at how you operate your bank account. Demonstrating that you can keep your business under control via your bank account will show you will be a trusted investment.
- Business Plan
This may be the part that most people would get overstressed about. This plan will obviously vary from business to business and can range in size from a single page to a 300 word document. Here you must communicate your overall vision and why the lenders funding will help your business achieve that vision. You should show that you understand the key elements of your venture; costs, overheads and how sales will be delivered.
- Financial Plan
Where you show a basic model showing income and expenditure. This part is just to show that you have thought about your venture and its affordability. You obviously want to show the potential lender that you will be able to make a profit and therefore make the payments back.
What Else You Need to Know - Personal Guarantees
Most financing cases will require a personal or directors guarantee. It is common for many to be reluctant to sign a guarantee but unfortunately it is just the way the finance industry works. This is just to give some financial security to the lenders to ensure they repaid. An asset finance lender only has security over the asset itself, here it would mean your prospective lender will only have security over the glamping pod itself. Once the pod is delivered to your glamping site that asset becomes second hand and is worth less than the lender paid for it.
This is all to help you understand that this guarantee is in place due to the high level of risk the lender will be taking. However we urge you not to be disheartened by this guarantee as it will reduce with every payment you make and will only ever be for the outstanding balance of the finance.
Other Sources of Finance for Your Glamping Pods
Of course these are not the only types of finance possible for your business. However they are the recommended methods of finance in regards to the renting of singular items such as cars, kitchen appliances and of course, glamping pods.
With that being said, here are some other types of finance you can attain for your business:
This is generally the cheapest form of financing as banks can afford to give good rates. However these rates are usually variable and their facilities are reviewable, this means that banks can call in a load if they feel that the business is not performing well. This is on top of arrangement fees that come with this type of finance.
On the flip side, bank borrowing can be beneficial as your overdraft can flex with the demands of the business.
This is similar to a bank loan, but is normally used in addition to a bank facility. It is essentially a legal agreement between a lender and a business, where all aspects of the loan are negotiable. However, this is generally a more expensive way to finance your glamping pods when compared to a bank loan.
This is by far the cheapest form of financing. You can have flexible repayment terms or if you’re lucky enough you may never have to pay it back! Nevertheless the nature of this type of funding is somewhat unpredictable and can have a negative impact on your business and possibly your family and no one wants that!
Some businesses have used crowdfunding successfully but it is not as simple as you might imagine. You will either require lots of people personally lending you small amounts of money or a few large groups who lend larger amounts, but there is no guarantee that you will get money from either.
Regardless of what finance you use for your glamping pods it is key to remember that what is important is what your monthly cost will be. Ensure your business can afford to pay the fee every month throughout the whole year and not just seasonal, as well as ensuring that this will help your glamping site grow and generate more profit. Whether you are an established glamping site or a new start up, financing your glamping pods can be your gateway into seeing your business expand.