Business Finance Series – What is Asset Finance? – Part 1

There are numerous ways that you can fund your business. In a previous series of blogs, I took a detailed look at one option: Invoice Finance.

And over the next few weeks, I’m starting another series of blogs looking at another way you can fund your business, namely, Asset Finance.

If as a business owner, you are considering asset finance, then there are some key questions you will need to answer:

• What is asset finance?
• How does it work?
• What are the options?
• What are the “pros and cons”?

Let’s start by asking the question, what is asset finance?

As part of its ongoing day-to-day operations, any business usually requires some form of assets in order to trade. These assets do of course vary considerably and include such capital items as:

• plant and equipment
• machinery
• computer systems
• telephone systems
• fixtures and fittings
• furniture
• vehicles including directors’ cars, lorries, vans and other commercial vehicles

Regardless of whether new assets are being purchased as part of an ongoing growth strategy, or assets are being acquired to replace existing assets within the business that have reached the end of their useful life and need to be replaced, these assets are normally large capital items that require a sizeable one-off payment to acquire.

The problem is that many business owners and entrepreneurs feel that if they use cash from within the business to acquire the asset, it can have a negative effect on the cash flow of the business, which of course is far from ideal.

That said, new assets are an important and integral part of running a business with the result that they need to be acquired. The question then becomes, what is the best way to go about acquiring an asset for the business?

What is asset finance?
Asset finance is a type of lending that gives you the ability to acquire business assets such as equipment, machinery and vehicles by using the asset in question as security for the finance. It also enables you to release cash from existing assets you already own.

Asset finance can help make the acquisition of new assets affordable. This is because asset finance spreads the cost over an agreed period, whilst also enabling the business owner to keep assets up to date and current.

Asset finance is particularly suitable for SME businesses, as it allows a business to acquire the assets or equipment it needs in order to operate successfully and to grow, whilst spreading the cost of the asset over an agreed period of time on monthly payment terms that suit the cash flow of the business.

Types of asset finance
As you may have guessed, there are a wide variety of options available when it comes to asset finance, with the result that you must find the asset finance solution that best suits your specific requirements and circumstances.

Broadly here are the main options:

• hire/lease purchase
• finance lease
• contract purchase
• contract hire
• sale and leaseback

Over the next few weeks, I’m going to look at each of these asset finance options in more detail, examine how they work and of course look at the ‘pros and cons’ of each of the options.

Next week we’ll continue the series by taking a detailed look at hire purchase.

In the meantime, if you are currently looking at purchasing an asset for your business, or you would like to release funds into the business by utilising an asset you already own, then why not talk to an expert. Email us at keith.park@fundingtrack.com or give us a call on 020 8949 2122 and let’s see how we can help.