Asset finance refers to a type of business funding where a company can use its existing or new assets (such as machinery, equipment, or vehicles) to secure financing. This allows businesses to acquire or refinance assets without having to pay for them upfront. Asset finance is ideal for companies that need to maintain or grow their operations but want to preserve working capital.
What is Asset Finance?
There are two primary types of asset finance:
Hire Purchase (HP): The business agrees to pay for an asset in installments over a set period, with the option to own the asset at the end of the agreement.
Leasing: The business rents the asset for a fixed term and may have the option to purchase the asset at the end of the lease, but ownership doesn’t transfer automatically.
Advantages of Asset Finance:
It helps businesses access needed equipment without the upfront capital.
Keeps working capital available for other operational needs.
Can be used for a wide range of assets such as vehicles, machinery, IT equipment, and more.
Business Profile: A construction company specialising in residential and commercial building projects.
Asset Finance Need: Business A needs new construction machinery to expand its operations and complete larger projects.
Asset Finance Type: Hire Purchase (HP)
Loan Details:
The business needs to acquire a £200,000 excavator.
They opt for a hire purchase agreement, paying £20,000 upfront and then £4,500 per month for 60 months.
At the end of the agreement, the company will own the excavator.
Scenario:
Business A uses the excavator for various construction jobs.
Monthly payments of £4,500 are made from the project earnings.
After 5 years, the company owns the excavator and can continue using it for future projects.
Business B: Delivery Service
(illustration purposes only)
Business Profile: A small delivery company that transports goods for local businesses. The company’s fleet of vehicles needs upgrading.
Asset Finance Need: Business B needs to lease 5 new delivery vans to keep up with growing demand.
Asset Finance Type: Operating Lease
Loan Details:
Business B leases 5 vans at a monthly cost of £2,000 each.
The lease term is 3 years with the option to purchase the vans at the end of the lease at a predetermined price or return them.
Scenario:
Business B is not interested in owning the vans outright but wants to use them for the next few years.
The company pays £10,000 per month for 3 years.
After 3 years, the vans will be returned, or Business B can choose to buy them at the agreed residual value.
Why Use Asset Finance?
Asset finance offers businesses a range of benefits, making it an attractive option for companies looking to access new equipment, machinery, or vehicles without using large amounts of upfront capital. Here are the key reasons why businesses use asset finance:
Preserve Working Capital
Access to Essential Equipment Without Large Upfront Costs
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Types Of Asset Finance
Hire Purchase (HP)
Finance Lease
Operating Lease
Asset Refinancing
Equipment Leasing
Vehicle Finance
Vendor Finance
Invoice-Based Asset Finance
Business Loans
What is Asset Finance?
Asset Finance is a type of business funding that allows you to acquire or lease essential assets like equipment, vehicles, or machinery without having to pay the full cost upfront.
How does Asset Finance work?
Asset Finance typically involves a lender purchasing the asset on your behalf, and you repay the cost over an agreed period, often with added interest. You may own the asset outright at the end or have the option to return or upgrade it.
How can Asset Finance help my business?
Asset Finance helps businesses preserve cash flow, access vital equipment, and scale operations without the financial strain of large upfront purchases.
What are the requirements to qualify for Asset Finance?
Requirements vary but generally include proof of business financials, creditworthiness, a business plan, and information about the asset you want to finance.
How much can I borrow with Asset Finance?
The borrowing limit depends on the value of the asset and the financial health of your business. Lenders typically cover most or all of the asset’s cost.
What is the interest rate for Asset Finance?
Interest rates for Asset Finance vary depending on factors like your credit history, business performance, and the type of asset being financed. Rates are usually competitive compared to traditional loans.
Can I use Asset Finance to consolidate my debts?
Asset Finance is specifically designed for acquiring or leasing assets, not for consolidating debts. Other financing options may be better suited for that purpose.
Can I get Asset Finance if I am a start-up business?
Yes, many lenders offer Asset Finance to start-ups, though they may require a personal guarantee or a higher initial deposit due to limited business history.
How long is the repayment period for Asset Finance?
Repayment terms typically range from 12 months to 5 years, depending on the asset and the agreement with the lender.
Can I get Asset Finance if I have bad credit?
Yes, some lenders specialize in providing Asset Finance to businesses with poor credit, though terms may include higher interest rates or additional conditions.
How quickly can I get approved and receive the funds?
Approval and funding for Asset Finance can take as little as 24-48 hours if all required documentation is provided promptly.
Can I use Asset Finance for any business expenses?
No, Asset Finance is specifically for acquiring or leasing tangible assets like machinery, vehicles, or technology equipment.
What documents do I need to apply for Asset Finance?
You’ll typically need identification, business financial statements, a description of the asset, proof of trading history, and possibly a business plan.
Are there any fees or charges associated with Asset Finance?
Yes, there may be arrangement fees, early repayment charges, or additional costs depending on the lender. Always review the terms carefully.
Can I get Asset Finance if my business has irregular cash flow?
Yes, Asset Finance can work for businesses with irregular cash flow, as repayments can often be tailored to align with your income patterns.
Can I use Asset Finance to expand my business?
Yes, Asset Finance can fund the acquisition of tools or equipment needed to scale operations, enabling business growth.
How do I choose a reputable lender for Asset Finance?
Research lenders’ reviews, accreditations, terms, and transparency. Consider seeking recommendations from other businesses or consulting a financial advisor.
What happens if I cannot repay the Asset Finance loan on time?
If you miss repayments, the lender may repossess the financed asset or charge additional fees. It’s crucial to communicate with the lender to explore alternatives.
Are there alternative financing options for Asset Finance needs?
Yes, alternatives include hire purchase, equipment leasing, or business loans tailored to specific asset purchases.
Can I use Asset Finance to purchase inventory or equipment?
Asset finance is designed for acquiring equipment and machinery but not stock. Other financing options, such as trade credit or business loans, may be better for stock purchases.
