Finding finance options for your business can be both time consuming and confusing. Not only do you need to find the type of finance that fits your needs, you also need to know that the business can easily afford the payments. Asset finance not only allows you to choose a flexible way to finance your future investment, it is also affordable. Finding the best asset finance rates is the first step to ensuring that you have the finance your business needs.
Asset finance explained
For many businesses, expansion or growth relies on the purchase of a large asset such as a piece of machinery or new vehicles. Asset finance provides a way to purchase these assets without needing to get a traditional bank loan. Essentially, asset finance allows the lender to use either the asset itself as the security on the loan by leasing or renting it to you until it is paid off or it uses existing assets in your business to give you the cash you need to invest elsewhere.
Asset finance has a number of benefits over traditional lending including being more flexible, having fixed affordable payments and being secured on an asset, reducing the risk to the business itself.
Regardless of the type of asset finance you choose for your business you need to be sure that you are getting the best possible rates for the investment.
How asset finance interest rates work
The first thing to understand about asset finance is that in most cases, it is the asset itself that is being financed and will be the security that is used for the loan. So, as you use the asset you are paying it off and if you default on these payments, you will lose the asset. The lender can either be an institution that is acting on behalf of the owner of the asset or a company that buys the asset on your behalf before leasing it back to you.
So, this type of finance is very different to a standard loan where you receive the cash and can spend it how you wish. These standard loans are often higher in interest due to the more flexible spending options. The lender has less control over how they get their money back.
For asset finance the interest rates will depend on the type of loan structure that has been chosen (hire purchase, lease, or asset refinance), but because it is backed by an asset, the lender can recoup their loan more easily and will therefore provide a lower rate offer. Of course, personal circumstances of the applicant will always be taken into account. A poor credit score will still mean a higher interest rate.
Finding the best asset finance interest rates
Interest rates can vary from 2% all the way to 50% for asset finance depending on the structure, so being able to calculate your possible payment is key. An asset finance calculator is a useful tool to be able to do this. These tools allow you to add your personal details, the amount you want to borrow, the value of the asset, the length of the term and give you an estimate of the monthly payment you will be required to pay. When it comes to planning this is invaluable knowledge.
What if I have bad credit?
The criteria that a lender uses for determining if you can get an asset finance loan will depend on many things, but the main one is the asset that will be used as the security. As long as the asset you are financing (or another asset your business already owns) is worth enough, the lender will usually be more than happy to lend. They may still want to see the accounts of your business to ensure that you have the ability to make the regular payments on the loan.
If you are a sole trader, your credit rating may be more influential in the decision, and you could be looking at a higher interest rate – especially if you are financing an asset that the lender would rather not repossess.
Finding the right deal for your business is crucial, but as you can see, asset finance is often a cheaper way to get those assets your business really needs. Even when you have poor credit or lower turnover, asset finance can be a credible source of funding for expansion.