Asset finance is the collective term for lending against assets. It is a flexible approach to funding that allows you to leverage assets you own or create payment structures to access assets you would like to own or lease. The real world example, similar from personal to business, that many people have done or know about is financing their car.
Asset finance is the fastest growing finance option for businesses of all sizes. With this model of finance, your business can access a range of equipment or machinery without having to buy the assets upfront and shock your working capital or cash flow.
An asset can include anything that is vital to the operation of your business, ranging from large milling machinery, tractors, road vehicles andprinters all the way to the equipment needed to fit out retail stores. This can includewalls, partitioning, paint, tiles and the like. If your business cannot afford to buy the asset outright, the asset finance provider will, in short, buy it for you, and you then pay them back in instalments or rent it off them.
Whilst the range of asset products vary to suit the payment structures of different businesses and the profile of different assets, they are all designed to ensure your business can grow without compromising your cash flow.
WIth Hire purchase, the borrower pays a relatively low deposit and then hires the asset from the financier over the term, with the option of buying the asset at the end of the contract.
Asset refinance does what it says on the tin; allows businesses to re-finance their existing assets. This involves leveraging the assets you already own to release cash. It is a great way of using the equity contained in high value business assets to generate cash.
Leasing an asset gives businesses the option of borrowing an asset from a lender for a fixed period, rather than having to buy it outright. Not only does this overcome the cash flow implications of paying for a new piece of equipment or machinery up front, but it also means the issue of asset depreciation is avoided.
A sale and leaseback is an arrangement in which the company that sells an asset can lease back that same asset from the financier. It is a relatively simple financial transaction that allows a business to spread the cost of an asset over the term of the lease.
There are many variants of asset finance, so there is no catch-all as to how it works, however asset finance has a few core principles.
A working example, if you own a farm and you want to expand your ownership of equipment you may consider hire purchase. A combine harvester can cost upwards of £300,000. If you don’t want to make an upfront payment, you can spread the cost over time. If you wanted to spread the cost over 2 and a half years for example, you would put a deposit for (eg) £30,000 down and then hire the asset for £10,000 per month over 30 months, with the option to buy the machine at the end for £30,000 making the total amount paid for the combine harvester £360,000.
Many businesses report that it is much easier to obtain asset finance than to get a business loan.
There won’t usually be a hard credit check carried out by the provider when you apply for asset finance.
With some asset finance arrangements, you are considered to be the legal owner of the asset throughout the repayment term, even if you’re not planning to formally purchase it at the end. This means you can claim certain capital allowances and reduce your corporation tax bill.
With asset finance, your business can use machinery or equipment without having to commit to purchasing it upfront, ensuring you get a return on your equipment from day 1.
You choose a repayment term that will ensure the required repayments are affordable. The repayment term will usually be anything between one and six years.
Because you make affordable repayments of a pre-determined amount, managing your cash flow will be much easier.
Hire purchase and leasing are both financing options available to businesses and individuals in the United Kingdom. There are a number of key differences between the two options that should be considered before making a decision.
Simply speaking, a drawdown facility is a type of business loan. However, instead of receiving the loan amount as a single lump sum at the
A revolving credit facility is a loan facility that enables you to withdraw money, use it, repay it, and then withdraw more money. As the
Funding Bay Limited is an FCA authorised and regulated finance broker, Reg No. 950847. Funding Bay Limited may receive payment(s) or other benefit from the finance provider if you decide to enter into an agreement with them.
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