Asset Finance

The vast majority of businesses use some form of asset such as machinery or technology to deliver products or services to their customers.

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Asset finance can support your working capital needs by essentially giving you access to assets which can help your business grow or refinance your existing assets so you have funds to reinvest.

Almost any type of asset can be applied for through asset finance facilities. Some popular examples include machinery, equipment, vehicles, furniture, computer systems and more. In the case of financing equipment for example, lease or hire purchase contracts would accept assets worth £5,000 or more.

The main asset finance options:

Hire Purchase/Lease Purchase

Instead of paying thousands of pounds in an upfront lump sum, hire purchase provides the option to spread the cost of the asset’s value over an agreed time period (including some additional interest). Once the contracted final instalment is paid, you become the full owner of the asset, but also bear in mind that for all intents and purposes you are responsible for any repairs or insurance that it may require.

Advantages include:

  • Structured payment instalments

Spreading the cost over time means you can access the asset you need more quickly whilst alleviating any cash flow pressures. Certain agreements will allow your repayment amounts to be adjusted in line with seasonality and to ease your budgeting further, fixed and variable rate options are available with certain repayment structures.

  • Full ownership potential

Once the agreed contract period is satisfactorily reached, the title of the asset is passed to your business.

Finance Leasing

This product is appropriate if you have no intention for asset ownership once the agreement is reached. Assets can be used in line with a contract involving agreed rental payments plus VAT for an agreed period of time.

Advantages include:

  • Full use without ownership

The finance lease arrangement’s rental nature means you will get to use the asset fully without the lump sum upfront investment.

  • VAT benefits

The business renting the asset can offset net VAT rentals against taxable profits and in some cases reclaim part or all of the VAT.

  • Flexibility for your needs

At the end of the lease you can continue under terms of a secondary agreement, return the asset or upgrade to a new asset on a new lease.

What is the suitability?

Deciding which of these options suits your business better is really only dependent on how you’d prefer to pay. If you’d prefer to pay more up front and lower the instalments, then hire purchase is more suitable. To avoid higher upfront payments, go for finance leasing instead.

Asset refinancing

Another option you can consider is refinancing assets that you already own (not those that still have financing on). They likely are tying up capital that you can use to inject more usability into your cash flow. This is similar to a secured loan where assets are used as security against a loan amount.

Through this process, you temporarily transfer ownership of said asset to the funder (though you still retain it enough to use it as usual for business), which means that if you, for any reason, cannot keep up the repayments of the amount then you risk losing this asset. This is also essentially like taking out a secured loan where you offer assets as collateral.

When you have fully repaid your borrowed amount, you regain ownership of the asset once again.

Assets that you can refinance involve most types of equipment for agriculture, manufacturing, construction or even transportation and vehicles.

Benefits of refinancing

  • It’s a quick way to release tied up to help improve cash flow in your business
  • Only assets you already own are involved, so you can pick and choose which you offer depending on your requirements
  • Assets provide security against the loan and funders are likely to look upon this favourably as it reduces risk for them of non-payment

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Want to more information about asset financing or on how to improve your cash flow? Our consultants are experts in understanding businesses of all sizes within all sectors and can help you to identify suitable funding options.

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