Any business idea, no matter how effective it may turn out to be, is useless if you don’t have the funding to turn it from a concept into a reality. But finding financing can be difficult – have you considered all your options, including these asset finance solutions?
What is asset finance?
Asset finance is a type of finance that businesses can use to acquire much needed equipment, such as vehicles and computers. You pay a regular amount to use the asset over an agreed period to avoid the cost of buying outright.
Spreading costs in this manner can easily help your business maintain a healthy cashflow. Asset finance is also usually easier to acquire than traditional loans as the asset secures the agreement, allowing you to quickly gain access to the latest equipment to give yourself a financial edge.
Plus, there are various types of asset finance solutions, meaning there is always something for everyone. Let’s go over a couple.
Equipment, operating and finance lease
An equipment lease means that the business enters a contractual agreement with a lender who allows it to use equipment for an agreed-upon period of time. Payments are made by the business until the contractual period ends.
Once the lease is over, the business can either return the rented agreement, extend the lease, upgrade to another piece of equipment, or purchase it outright.
Similar to this is an operating lease, although they typically last longer than an equipment lease. As a result, periodic payments tend to be cheaper for operating leases than equipment leases.
Then there is a finance lease. The defining feature of this arrangement is that all the rights and obligations of ownership are taken on by the borrower during the lease, although they still do not own the asset. In other words, the borrower is responsible for the maintenance of the asset during the lease.
These arrangements are advantageous for businesses that rely on the latest equipment and technology – in some circumstances, assets can require yearly upgrades. They’re also a good idea if you need an asset for a short period of time only.
Just be aware that renting costs can prove more expensive than purchasing outright if you rent for a long time. So, if you need a piece of equipment for a long time, you may be better off with a hire purchase.
If you actually want to purchase an asset but can’t afford to buy it outright, a hire purchase might be the way for you. In this, the lender purchases the asset for you, and you make payments for it over time. Once the loan is paid off, you can then purchase the asset at a discounted rate.
Again, this is a good option if you want to own an asset but need to spread the cost. However, please be aware that you will end up paying more for the asset, but at least the cost is spread over time.
Under an asset refinance, assets, including property, vehicles and equipment, are used to qualify for borrowing and put up as collateral. Rather than a bank judging you based on your creditworthiness, it will value the pledged assets and create a loan based on this figure.
This is an option for businesses that need cash rather than assets, maybe to hire staff or hire an accountant. Just make sure that you’re willing to lose the assets you pledge before you sign up to such an agreement – that is what you will lose if you can’t make your payments.
Get in touch with us
If you need help with financing, get in touch with us. We’ll discuss your goals and business to understand which asset finance solutions are right for you.