As finance brokers, we regularly talk to business owners who have never explored asset finance options. They will often be quite proud of their ability to, thus far, buy all their assets on an outright basis. And whilst it is admirable from a cash flow perspective to be able to do so, that doesn’t always mean it’s the most affordable way to manage business growth.
When it comes to acquiring new assets, it’s important to remember that asset finance is there to help you, providing a financial facility to your business. It’s not there to provide an additional burden or debt stream within your business.
Making an Outright Purchase
Purchasing your business assets outright commonly requires a high outlay of capital upfront. It goes without saying that you will have worked hard to build a healthy cash flow, so leaning on this for large purchases can put undue pressure on your business.
Working capital can be better spent elsewhere in your business, for example to pay your staff salaries and providing reliable funding for recurring expenses.
Of course, you can make an outright purchase with the use of funding still, like via a bank loan or overdraft, but these may come with higher interest rates, lengthy application processes and additional security measures.
Exploring Asset Finance Options
Asset Finance is one of the most recognised and flexible sources of funding in the market and can be used by businesses to acquire new or used assets. It is commonly used for assets that pay for themselves by generating revenue when used, like:
- Plant & Machinery
- Vehicles (and even boats!)
- Trailers
- Construction Equipment
- Technology
The cost of the item you finance will normally be spread over the duration of its usable life. You pay the lender an agreed amount per month and at the end of the term you will own the asset outright.
The Benefits of Asset Finance
The use of Asset Finance means that your working capital remains a steady lifeline to the business, supporting other areas of growth and investment. Retaining cash reserves, rather than spending a large amount to fund the full cost of the asset, will enable a business to cover any unforeseen circumstances or invest in other areas that can help generate more profit.
It also gives your business greater buying power by giving you access to top of the range assets, as opposed to what your available cash flow states you can afford.
How Asset Finance Options Work
From a lenders point of view, the security provided on the loan is against the asset itself rather than charged over the whole business.
Asset Finance agreements are generally attractive due to the flexible repayments on offer and the ability to tailor plans to suit your own individual requirements with things like deposit size and balloon payments. Often, seasonal payment plans can also be agreed to align with your businesses busiest and quietest periods of the year, adjusting the monthly payment to suit.
Not forgetting the tax benefits, payments made on a finance lease agreement are also tax deductible, giving business further savings.
Your Asset Finance Options
Businesses in every sector are often surprised by the broad variety of goods that can be financed using asset finance. It covers a range of product forms, so there’s something for everyone.
Hire Purchase
…A simple way to spread the cost of buying an asset. You pay a deposit plus fixed monthly instalments for the agreed term. The assets become your property as soon as the final payment is made. This can make hire purchase the solution for durable items you want to keep, such as catering equipment and heavy machinery and for crucial business items such as a tractor.
Finance Leases
…Allow you to borrow equipment for a set time, but maintenance, repairs and running costs will become your responsibility. Finance leases are common with more significant assets such as complete factory plant installations. For example, if you want to set up a full production line, a finance lease could provide the scale of funding required.
Asset Refinancing
…Is best suited for businesses that have already invested in equipment and need to release some capital that is tied up in those assets. Your lender will buy the equipment from you and will lease it back to you over an agreed period where you’ll make regular payments.
Operating Lease
…Is a contract that permits the use of an asset without transferring the ownership rights of said asset. These allow businesses to avoid the high costs involved with purchasing. Generally, the lessee must maintain to operational condition, less any normal wear and tear.
To discuss the options for your business and how Asset Finance could support you, call one of our specialists on 01908 92 62 62 or hit the APPLY NOW button.