Why finance refrigeration at all
A cold room or a fit out earns its keep from the day it is installed, through stock that is not wasted, a range you could not sell before, and electricity you no longer pay to run four tired uprights. Finance matches the payments to that income instead of taking the cash out of the business in one month, keeps your overdraft free for stock and wages, and can bring forward a project that would otherwise wait a year. The cost is the interest and fees, so the question is whether the equipment earns more than the finance costs, which for most refrigeration it does.
Hire purchase
You pay a deposit (often 10 to 20 per cent, sometimes the VAT), then fixed monthly payments over two to five years, and own the equipment outright at the end, sometimes after a small option-to-purchase fee. The equipment is yours on the balance sheet from the start, so most businesses can claim capital allowances on it, often the whole cost in the first year under the Annual Investment Allowance, and the interest is normally deductible. Hire purchase suits equipment you will keep for its whole life, which describes most cold rooms.
Finance lease
The lender buys the equipment and rents it to you for a fixed term, usually two to five years. Payments are lower than hire purchase because you are not buying the asset, VAT is spread across the rentals rather than paid up front, and the rentals are normally treated as a business expense. At the end you can return the equipment, extend the lease for a small secondary rental, or sell it on the lender's behalf and keep most of the proceeds. A finance lease suits businesses that want the lowest monthly cost or expect to upgrade.
Operating lease and rental
A shorter-term rental where the lender keeps the risk in the equipment's value. It is common for display cabinets and catering equipment with a resale market, rare for a made-to-measure cold room that only fits one building. Rental is the right answer for a temporary need, for example cold storage while a room is rebuilt.
Business loan or overdraft
A bank loan or overdraft keeps the equipment and the borrowing separate: you own the equipment outright and repay the bank. Rates can be lower for an established business with a good bank relationship, but the loan uses your general borrowing capacity and may need security. Asset finance from a specialist lender is often quicker to arrange because the equipment itself is the security.
What lenders look at
- Trading history and filed accounts, usually at least two years for the best terms.
- The deposit you can put down.
- Whether the directors will give a personal guarantee, common for smaller companies and new businesses.
- The equipment: new rooms and cabinets from an established installer are easier to finance than second-hand or self-installed kit.
- A detailed, itemised quotation, which is also what you need to compare installers.
What can be financed
The cold room, freezer room or cold store, display cabinets, counters and shelving, and usually the installation and electrical work when they are on the same quotation. Some lenders finance the whole shop fit out as one agreement. Maintenance contracts are normally paid separately.
How to compare offers
- Total amount payable over the term, not just the monthly figure.
- Deposit, fees and the option-to-purchase fee at the end.
- Whether VAT is paid up front or spread.
- Early settlement terms if you want to pay it off.
- Who owns the equipment and who insures it during the term.
- What happens if the equipment fails: finance continues, so a maintenance contract matters more, not less.
Tax: ask your accountant
Capital allowances, the Annual Investment Allowance, the treatment of lease rentals and VAT recovery all depend on your business and change with the tax year. Take the quotation and the finance offer to your accountant before you sign. Alaska Cold does not give tax or financial advice.
Want a price to take to a lender? Request a free quote, or read our cold room cost guide first. Our cold rooms, shop fitting and cold storage pages explain what the quotation will cover.