> Asset finance at a glance:
- Asset finance can help businesses spread the cost of acquiring a new asset to help your business grow or move into new areas.
- Asset finance can also release funds against existing assets even if you have owned them for some time.
What is asset finance?
Asset finance is a type of loan. Asset finance is often used to purchase equipment for growing businesses. For example, if you own a company that’s expanding but doesn’t have enough money on hand and wants the investment now instead of later, then asset financing might be right for your needs. You can use asset finance to fund things such as plant & machinery, vehicles or any sort of new equipment.
When a business requires the purchase of new physical assets, such as equipment or machinery, for example, they can finance it through a finance company. The business then makes regular payments to the finance company. There may be the opportunity to fund 100% of the asset depending on what it is and the strength of your company.
What is an asset?
Assets are a fundamental part of any business, whether it’s the company itself or its resources. Assets can be anything that has value and is capable of being converted into cash. An asset should always have an intrinsic worth that can lead to business growth.
What types of asset finance are there?
There are several types of asset finance. There are advantages and disadvantages to each, it is important to chose the right type of deal for you. Some examples are:
Hire purchase (or lease purchase)
This is a very similar model to hire purchases for individuals. The Hire Purchase Provider retains ownership of the asset and leases it out on agreed terms, with payments made regularly in order not to disrupt business operations.
Finance lease (or capital lease)
This type of financing is unique because the business never owns any assets. They are only renting them and making payments to an agreed schedule, which usually last until they’ve recouped what was spent on that particular asset (in some cases you might get paid a percentage when it sells).
Equipment leasing
Equipment leasing is similar to finance leasing and is a great way to get the equipment your business needs without having to pay upfront costs. You just rent it and then choose what happens with that particular asset after its lease term ends, whether you’re willing to extend another year or buy out our current agreement early.
Unlike hire purchase, the maintenance and servicing costs for equipment leasing are down to the provider. That means the business doesn’t need to worry about this element. As an operating cost, equipment leasing can also be offset against gross profit.
Operating leasing
An operating lease is a contract that permits the use of an asset without transferring the ownership rights of said asset.
Operating leasing is typically over short to medium term and can be a more cost-effective solution to equipment leasing.
There are 2 forms of asset financing:
- Using a set asset as security against a loan
- Sale & Leaseback: In this scenario, a business will sell an asset to an asset finance provider for an agreed price. The business then leases the asset back from the provider.
Is asset financing a good solution for my business?
Asset financing can be a great way for smaller or newer companies to access the capital they need. Asset-based lending has been traditionally only used by larger businesses, but with more funders becoming available in recent years this is no longer true – any size company may consider asset finance.
There are many different asset finance funders in the market, it can be a minefield to determine who would best serve your business.
Book a free consultation with our experts to discover how asset finance could help grow your business in 2022: