Equity
A PLC investing in a major project, with returns ten years hence, may well have to raise part of the investment in equity. A new start business may only have equity finance as an option. Irrespective of if gained from a share issue or an owner re-mortgaging his house the incremental cost of obtaining such funding is significant and would be an unusual preference outside the circumstances mentioned above.

Cash
Surplus cash in a business has a cost, the cost of not investing it back in your business, return on capital. All alternative finance should be assessed against this measure. Irrespective of the nuances of return on capital's value cash can have a role in asset acquisition. The large corporation for small individual assets and an option for new starts before a planned return on capital has been established. In making these choices the long term cash flow must be considered. Even if a long term surplus is predicted future cash flows have an element of error introducing a risk that if you can't assess you probably shouldn't take.

Secured Loan Facility or Overdraft.
An overdraft facility secured against the assets of the company or perhaps a small business loan secured against the owner's property can be competitively priced. There are however two hidden costs the term or length of contract and the use of security. Overdrafts have a variable interest rate and this is likely to vary considerably over the assets life. Loan facilities, even with a fixed rate, may have incremental charges for individual drawdowns or terminations. Neither the overdraft nor the loan altrnatives provide a contract term that matches the assets life. Seldom does the security match the value of the loan from a property mortgage to fixed and floating charge over the assets of a company 100% advances are rare. Security is a finite resource and some cost should be allocated to its use.

HP/Lease
An HP/Lease arrangement matches your repayments for the asset to the benefits you receive from the asset over its life. For any organisation this type of finance should be a part of their portfolio. In addition the security is usually the asset, 100% cover, bringing an additional credit line. The long term fixed nature of the contracts and the restriction of security brings a risk to the asset financier. This is reflected in the pricing or interest rates of the HP/Lease options. When assessing HP/Lease options the following points should be considered.

• Term equals asset's life.
• Fixed interest rate
• Extension to the term at a much reduced rental rate. (lease)
• Balloon payment to equal achieved resale price. (HP)
• Documentation in easily understood language meeting FLA (Finance and Leasing Association) guidelines. With special reference to the tax variation and early settlement clauses.
• No documentation or completion fees.