Almost every business uses fixed assets of some kind, so the various forms of asset finance might well be an option for your business.
There are essentially four main things to ask if you are considering asset finance.
Do I want to acquire an asset, or raise funds against an existing asset?
Hire purchase and asset leasing are types of asset finance where you can acquire a new asset, perhaps to replace an antiquated older one, or to help you gain a competitive advantage by using the latest state-of-the-art technology.
Asset re-finance and sale and leaseback, meanwhile, are methods of raising funds using assets your business already owns. You can then use the funds raised for any business purpose.
What kind of arrangement do I want?
The main types of asset finance include:
Hire purchase: Here you identify an asset you want to purchase and make an initial deposit payment to cover a small percentage of the purchase price, say 10%. You then rent the asset from a finance provider and make regular payments to cover the remainder of the purchase price, plus interest. After making all required repayments, you become the legal owner of the asset. The ‘hire’ period, when you don’t own the asset and are required to make repayments, might typically last for up to seven years.
Asset leasing: Here you identify an asset you would like to use, although not necessarily one you want to purchase. You simply make monthly payments over the term of the lease agreement for the right to use the asset. At the end of the term, it’s most likely that you would return the asset to the provider, although some agreements may include an option to buy the asset. These are usually fairly short-term agreements, perhaps for between one and five years.
Asset re-finance: This involves a finance provider lending you money against an asset that your business owns. At the start of the agreement, ownership of the asset is transferred to the finance provider, and you make regular repayments of the amount borrowed, plus interest. Throughout this period, you retain full and exclusive use of the asset, in much the same way as if you still owned it. At the end of the term, after making all required repayments, you once again become the owner of the asset. The term of the agreement might be dictated by the expected useful life of the asset, but asset re-finance agreements often have longer terms than hire purchase or asset leasing – perhaps 10 years or more.
Sale and leaseback: Here you sell one of your assets to a finance provider. The provider then leases the asset back to you, so while you might have permanently surrendered ownership of an asset, in some ways this type of arrangement gives you the best of both worlds, in that you can use the sale proceeds to develop your business, whilst also retaining use of the asset. You will, of course, have to make regular repayments for the right to continue using the asset.
Can I afford it?
Before you enter into any form of asset finance, you need to be confident that you can afford the repayments that you might be expected to make every month, or perhaps every quarter. All asset finance agreements require you to provide a business asset as security, with the finance provider then able to re-possess the asset if you don’t maintain payments.
What assets can be used as security?
A wide range of different business assets can be used as security for an asset finance agreement, these are just some examples:
- Industrial machinery, e.g., packing equipment
- Construction equipment, e.g., cranes or bulldozers
- Company cars, vans, lorries, tractors and other vehicles
- Boats, aircraft and other modes of transport
- Computers, printers and other IT equipment
- Ovens, refrigerators and other equipment that might be used in catering
- Agricultural machinery, e.g. harvesters
So how can Funding Bay help?
Funding Bay are experts in asset finance. We have access to deals from many different asset finance lenders and can help you find the right product and finance provider for your business.
If you are interested in how asset finance can assist your business, contact Funding Bay.
