Looking to raise finance against a new or existing asset?
Many businesses use some form of asset to trade or to run and operate their business. Business assets include such things as:
- Plant and equipment
- Computer systems
- Fixtures and fittings
- Vehicles including lorries, vans and other commercial vehicles
The problem is that for an entrepreneur or small business owner, it can often feel that buying a new asset for the business requires a large, one-off payment which can of course negatively affect the businesses cash flow.
That said, new assets are often needed within the business to help it to thrive and grow.
That’s where asset finance can help, because it makes buying new assets affordable by spreading the cost over time whilst also enabling you to keep your assets up to date.
Almost any asset can be acquired through some form of asset finance, and as a guide, if the asset is worth at least £5,000 it’s likely that asset finance can be arranged to assist you with the purchase.
This helpful guide from the Institute of Chartered Accountants in England and Wales explains some more of the detail surrounding asset finance and you can read it here:
To summarise , there are two main options when it comes to asset finance:
Option 1 – Hire Purchase
Hire purchase is a well-known option. How it works is that instead of paying a large upfront lump sum, you spread the cost of the value of the asset usually over a period of time which is typically 1-5 years. Once the agreed payment period is up, you become the owner of the asset.
Option 2 – Leasing
The alternative is leasing which allows you to use an asset in your business for a monthly amount, however at no time during the agreement do you own the asset. The advantage is that the lease deal can often include any repairs or maintenance that may be required during the period of the lease at no additional cost to you.
How much does it cost? Let’s say a business decides to buy a piece of machinery costing £100 000. They decide to buy it on a hire purchase basis over a 5-year period. The business might be required to pay a deposit of 10%, i.e. £10 000. That means the outstanding balance of £90,000 will be repaid in equal monthly instalments of approximately £1,700 over the 5-year period assuming an interest rate of 5% per annum.
At the end of the 5 years the business owns the piece of machinery or whatever the asset was.
The difference with a lease agreement is that the monthly payment could be higher or lower than the example above. This will be determined by an estimate of something called the ‘residual value’ of the asset at the end of the contract term or lease period. In addition, of course you will never actually own the asset.
In summary, asset finance is an excellent way to acquire the assets you need to help your business to thrive and grow.
It gives the flexibility of a regular monthly payment, without the need to tie up a large amount of capital in buying the asset outright.
And of course, this can only be good for cash flow.
Please bear in mind that asset finance can also be used to raise funds on existing assets which may have been originally purchased for cash.
By way of example I have a client at the moment who runs a cement mixing company in West London. He has vehicles and plant with a total value of £600,000 which were all acquired from new within the last 2 years using cash generated by the business. He is now expanding the business and wishes to raise £350,000 to inject into a property purchase.
We are raising both the commercial property finance, but also the asset finance against the existing unencumbered assets which is of course a crucial part of making the deal happen.
If you’d like to find out more about how we can help you raise finance against new or existing assets please don’t hesitate to get in touch.
Simply email us at firstname.lastname@example.org or call us on 020 8949 2122