Block Discounting

 

This is a very specialist type of lending in a small niche market involving only a hand full of lenders in the UK.

 

It is a form of funding used by companies who provide a leasing or rental type of finance agreement to customers over a credit period of upto 5 years. The goods are usually motor vehicles or items of capital equipment or products manufactured and distributed with a resale value, by companies offering a ‘sales aid package’ that helps to sell their products.

 

Services are normally excluded in this type of funding due to the contingency risk of non-performance over a period of time.

 

The company offering finance builds up a portfolio of credit agreements which provides the security to raise a loan by using a specific number of agreements or ‘Blocks’ of agreements. The agreements are ‘discounted’ against their full value to protect both parties against default or early settlement by the customer.

 

The monthly/quarterly repayments from the customers effectively provides the loan instalments to the lender, repaid over a shorter time than stated on the original agreements.