It used to be said that asset finance was a scary word, one where companies risked putting a dent in their net worth for the sake of a cash injection. But asset finance solutions can be worth their weight in gold for the financial ease with which startups, new companies and SMEs can lay their hands on much-needed cash.
Asset finance solutions include hire purchase, leasing, and refinancing, and it is even possible to use your pension to access finance too. It is one of the most commonly used forms of finance in the UK helping businesses with lending solutions helping them purchase commercial vehicles, equipment, plant, machinery and new technology like software.
From a managing director’s or business owner’s perspective, sourcing and acquiring finance for the business can be a huge challenge when looking at getting the right equipment from suppliers and they must ensure funding is in place that matches their business needs.
This often boils down to cash flow – cash flow is critical to the success of a business.
Asset finance provides a solution when outright purchasing restricts spending on other parts of their business and where the cost of finance can often be a burden, not a benefit.
Asset finance solutions
Hire Purchase
Helps spread the cost of an asset and it offers ownership at the end of the contract. Benefits include fixed monthly payments and end-of-term ownership. This finance is best for companies with limited cash flow where payment is designed to remain even and constant and where there is little or no initial outlay required.
Leasing
Offers the customer the use (but not the ownership) of an asset through a regular rental payment but it is often more expensive than a hire purchase. In a fast-paced technology environment this can be a good option for ensuring equipment or machinery is constantly up to date. The benefit of this is that it allows a business to use the asset and ensure that the payments are totally offset against its profits, making it highly tax efficient. Depending on business income it can relieve pressure on cash flow in the company. Leasing can also be flexible and there is no capital outlay required.
Leasing can come in two forms; a finance lease and an operating lease.
Finance lease – will enable a company to take on all the rights and obligations of ownership – in terms of ownership and insurance – during the course of the lease. This means that during the period of the agreement, the customer will have paid almost all the value of the asset during the contract period effectively owning it outright at the end.
Operating lease – when a business cannot afford or does not need, to run a piece of equipment for its working life an operating lease can be used. At the end of the agreement, the asset finance company will take back the item having maintained it during its lifetime.
Refinancing
Allows a business to unlock capital already held in assets. It is effective in ensuring a business that needs additional cash flow – rather than new equipment, plant or machinery – gets to unlock much-needed finance. Refinancing involves a finance company loaning an amount secured against assets owned by the business. Repayments are made on a monthly basis in affordable instalments, and as long as you stick to the payment schedule you will retain use of your asset while still enjoying the extra capital.
Sale and Leaseback
Assets that are already owned by the business are purchased by a finance company at an agreed value and then leased back to the company, in much the same way as a hire purchase agreement. It is a popular form of raising finance for established companies that already own a lot of unencumbered assets. The benefits of this are an immediate cash injection and often reduced monthly overheads too.
Pension backed funding
Using your personal pension can be a fourth route to asset financing, one which can be effectively completed through a well-run pension scheme. By combining pension funds, business owners can create an SSAS (Small Self Administered Scheme) or SIPP (Self-Invested Personal Pension). With this they can, assuming all qualifying criteria are met, make a loan-back to the business and in doing so provide a cash injection with which they can use to purchase plant, machinery and technology, or to just inject into the company as ready funds. All of which can be secured against existing assets. Although this is an area of funding that will need strong professional advice.
Funding Guru can offer you a cash injection when you most need it. To learn more about our finance packages call us today on 03330 069 141 or request a call back for a free, no-obligation chat with a member of our team.
