What is asset finance?
Asset finance is a type of business funding which is used to either buy or refinance the assets of a business. There are a wide range of assets which can qualify, including:
- Machinery, equipment and vehicles
- Furniture, lighting and internal refurbishments
Why is asset finance useful?
It can help a business to own the equipment which is vital to enable them to trade successfully and efficiently, and means they don’t have to pay out large lump sums of cash which they may not have.
No two companies will have the exact same requirements, so we work with a broad selection of asset finance lenders across the market to secure the best possible terms for our clients.
How does the process work?
The process of arranging asset finance will vary, depending on the lender you choose to use and the levels of finance you are seeking to raise.
There are many different types of lenders out there, and a huge range of products – this means scouring the market for the best deal can be a complex, confusing, and time-consuming task.
A good broker will remove all of this hassle for you, using their expertise and contacts to secure the best deals, with market-leading rates.
They’re the ones who will do all the legwork for you, and become your single point of contact – not just up to the point of submitting your application, but managing the process right the way through to completion.
So what’s it going to cost?
Interest rates aren’t usually published before making an enquiry because every individual scenario will be treated on its merits, but we offer a variety of low-rate asset finance options.
Factors which will impact on the rate offered include the type of asset and the nature of the company that is seeking the funding. Rates can differ a lot from one lender to the next.
As a general rule, strong assets which offer high levels of security and good residual values will always attract the lowest rates.
Have you had credit problems before?
This may reduce your options, but don’t worry, it won’t rule you out altogether.
There may be some lenders who are unwilling to accept an application from a company with a troubled credit history, but we have a number of lenders who will still be happy to help.
Not only that, they will usually be able to arrange funding quickly, if time is of the essence.
In instances such as this, the strength of your asset will play a particularly big part in the rate which is offered.
For example, if you are looking to finance relatively weak assets which have short lifespans, the rate you are offered will be significantly higher.
Pros and cons
If you’re considering applying for asset finance, it’s important to weigh up the advantages and disadvantages.
Advantages include:
- Rates are usually fixed, so you’ll be able to budget with confidence, knowing how much your monthly repayments will be
- If there’s a problem with the equipment, the leasing company may be responsible for covering the cost of repairs
- You may be able to buy a better quality or standard of equipment than you would otherwise be able to afford
- The cost can be spread over a period of time, helping with cashflow
Disadvantages include:
- Because you are spreading the payments, the cost of buying your asset may work out more expensive than buying it outright
- If you want to cancel the agreement before completion, some contracts will include sizeable early repayment penalties
- A deposit may be required, depending on the finance terms negotiated
Choosing the right type of finance
Do you know the difference between a hire purchase agreement, a finance lease or operating lease? It’s important that you are familiar with the terminology before choosing the right type of package for your needs. The most common types of asset finance include:
- OPERATING LEASE: This is also known as contract hire, and is probably the best known form of leasing. It’s also the most straightforward; it’s a rental agreement for a specified item, running for a specified length of time
- HIRE PURCHASE/LEASE PURCHASE: This offers regular repayments, a chance to spread the cost over a longer period, and the ability to buy the item when the agreement comes to an end, should you wish. Contracts would typically be based around fixed monthly repayments, which make financial forecasting much easier. Remember, however, that you will usually be responsible for maintenance costs – so you should factor in some extra expense to cover this
- FINANCE LEASE: If you want the option of simply borrowing an asset, rather than buying it outright, this is worth considering, Again, there’s a benefit for business cashflow as there is no upfront payment. And since the asset is rented, rather than purchased, it won’t appear on your balance sheet, meaning rental payments can be offset against your VAT, and profits
- ASSET REFINANCE: This is where a business owner sells their assets to a provider, then leases them back through an agreed series of monthly payments. It’s a way of continuing to use your asset while easing cashflow pressures, and releasing capital back into a business
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