Funding Bay Blog

Is asset finance right for your business?

Many businesses have benefitted from arranging asset finance via Funding Bay. But is it right for you? 

The first consideration is to make sure that you are happy with the idea of a secured finance arrangement. All of the principal types of asset finance require a business asset to be provided as security, which can then be re-possessed if you fail to maintain repayments. 

Then, it’s important to consider the pros and cons of each type of asset finance. You might choose to acquire a new asset via hire purchase or asset leasing or realise funds from an existing asset via asset re-finance or sale and leaseback. 

Hire purchase – advantages 

  • It can give you access to a higher quality asset than might have been the case had you made an upfront cash purchase 
  • Most agreements have a fixed interest rate, so you can budget easily knowing that your repayments will not rise 
  • It’s often the case that you can pay off the loan early without penalty 

Hire purchase – disadvantages 

  • The total cost can be significant once you have made all the required repayments 
  • The asset may have depreciated in value or become obsolete by the time you become the owner of the asset 

Asset leasing – advantages 

  • Again, you might be able to lease a high-quality asset, where a purchase might be out of the question. Having a high specification asset can then help you become more efficient and gain a competitive advantage 
  • The rental payments may be tax deductible as a business expense 

Asset leasing – disadvantages 

  • The asset may become outdated before the end of the lease term, especially if you end up with a longer agreement 
  • Again, the total cost can be substantial once you have reached the end of the term and made all your lease payments 
  • Your business might need to be VAT registered to access this type of arrangement 

Asset re-finance – advantages 

  • It can provide a significant cash injection 
  • The funds raised can be used for any business purpose, which might include developing new products and services, or taking on additional staff 

Asset re-finance – disadvantages 

  • You have to surrender ownership of the asset temporarily, and won’t regain ownership until you have made the final repayment 

Sale and leaseback – advantages 

  • As with asset re-finance, you can use the sale proceeds for any business purpose 
  • It doesn’t involve the same level of costs as some other forms of finance arrangement 
  • If there was any debt attached to the asset, it can be removed from your balance sheet once the sale is completed 

Sale and leaseback – disadvantages 

  • As you have sold the asset, you will no longer be able to benefit from future increases in its value 
  • The asset can no longer be included on your balance sheet, which adversely affects the value of your company 
  • You might be liable for capital gains tax on the sale proceeds 

If you’re interested in asset finance for your business, get in touch with one of our professionals at Funding Bay today.

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