Asset finance is used to describe a wide range of loan products that are tied to physical assets like machinery, equipment, vehicles and technology. Depending on your business it could be anything from a fleet of vehicles to a 3D printer in the office.
How does asset finance work?
This is a type of finance used by companies that are looking to grow, but don’t have large access to cash reserves. It makes more sense to pay a regular (monthly) charge for the use of an asset over an agreed period of time thus avoiding having to pay the full cost of it by buying it outright.
Asset financing can be very flexible and can be used to fund any asset from helicopters to photocopiers. While the business gets full use of the asset, as if they own them, it remains the property of the finance company. It is useful when purchasing that same equipment outright would otherwise be unaffordable.
Finance agreements can be customized to the needs of an individual business offering flexibility through payments and length of term. Asset finance providers are often quite specialists regarding the type of asset they offer to fund.
Asset financing can often be viewed in three categories:
Asset Refinancing
When a business already owns high-value assets outright, they can be used to secure funding. An asset finance lender will advance funds to a business based on the value of an asset. It will secure the asset (or take ownership of it when used as a sale and leaseback) in exchange for an agreed loan and monthly repayments.
Hire Purchase
Most people recognise hire purchase as a method of financing a new car, but it can also be used to purchase other equipment too. A finance company will purchase the equipment on behalf of the customer. As it is owned by the finance business but will lease it to the customer until the final agreed instalment is made. At this point, there will be an option for the business to take ownership of the asset for a (usually) nominal payment.
Leasing
Is often a great option for new companies that can show financial security without the deep pockets required to purchase large machinery or expensive equipment. It offers company access to new equipment by renting/leasing it for a set period (contract) of time.
According to the Finance and Leasing Association (the trade association for asset, consumer and motor finance sectors in the UK over £29 billion of asset financing was provided to businesses in 2015. This represented almost 32% of the total UK investment in equipment and machinery and purchased software.
Asset finance 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 business finance consultation below.
