Funding Bay Blog

Should I be Using Asset Finance for my Small Business?

Asset finance could help your business afford large investments into equipment which could help your business grow. 

Here’s a common problem many small businesses face. To grow, they need to invest in new equipment. Unfortunately, they don’t have enough money to finance the expenditure. In situations such as these, asset finance could provide an answer. 

What is asset finance?

Asset finance can help a business spread the cost of buying large pieces of machinery, vehicles or other equipment over a long period of time. It can free up working capital or help you afford purchases which might otherwise have been out of reach. In a tricky economic climate, asset finance is helping businesses make the investments they need to recover after the pandemic. In January, data from the Finance & Leasing Association showed that total volumes of asset finance had grown by 11% compared to the same period in 2021. 

How does asset finance work?

Assets can refer to so called hard assets such as machinery, cars, engineering and manufacturing equipment or soft assets which are less durable such as computers, security systems or furniture. You may access it through a specialist finance provider, broker or in some cases, the supplier of the equipment. 

Under the terms of the deal the company would essentially purchase the equipment and then rent it out to you. The leasing arrangement will usually be over a set period in which you pay back the amount borrowed as well as any fees other costs imposed.

It comes in many forms, some of which allow you to buy the equipment after a period of time, continue to lease, hand it back or upgrade to something new. It’s similar to a lease-hire arrangement you might have with a car. In much the same way, this helps businesses secure access to the best equipment more affordably. 

What are the benefits of asset finance?

There are many benefits to asset finance:

  • Creating opportunities for investment: In a highly competitive economic landscape, businesses need to keep moving forward. However, those which can’t afford the investment risk stagnating. Asset finance creates the opportunity to invest in the future of your business.
  • Free up working capital: Buying large pieces of equipment can be risky and may put your working cashflow at risk. Spreading the costs might be more expensive in the long run, but it will ease the load on your finances. 
  • Secure the latest equipment: Having the latest technology can make an enormous difference to the value you get from it. Asset finance arrangements which enable you to upgrade to newer models at the end of the term offer an opportunity continually move forward with the benefit of the latest and best equipment. 
  • Lower ongoing costs: Depending on the arrangement you have with the lender; they may take on some of the ongoing maintenance costs of the equipment. It’s a bit like the difference between owning and renting a house. Although the house is not yours, at least you won’t have to cough up if the boiler breaks. 
  • More accessible: Because the lender can always sell the asset if you can’t pay, they will be more likely to lend even if your credit history is not all it could be. 

What are the downsides of asset finance? 

Against that there are some concerns to watch out for. 

  • Lack of ownership: The most obvious is you will not own the equipment and it could be taken away from you if you can’t make the repayments. 
  • Long term costs: Although the short-term costs might be lower, this is a long-term arrangement. The company wants to recoup its investment and make a sizeable profit into the bargain. At the end of the process, this can end up as quite an expensive way to management machinery. 
  • Costs of cancellation: This is not something which can work for a short-term arrangement. They make their money through the interest on the asset. It’s in their interests, therefore, for you to see it out to the end of the term. Repaying the loan early will often come with penalty fees. 

How to choose asset finance 

Asset finance is something of a balancing act. In the short term, you free up capital and can buy the latest shiniest piece of equipment on the market for a much more affordable price. On the downside, you’ll end up paying much more than the total cost of ownership. Which option you choose will depend on the situation of your business. However, for small businesses with limited cash on hand, this can be a way to unlock opportunities for growth. 

To unlock these opportunities for growth, get in touch with one of our professionals at Funding Bay.

Asset Finance Calculator

When you use our free asset finance calculator, you will find accurate pricing structures that are designed to show you how much loan you can afford

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