Are you a business owner looking for ways to grow your business? If yes, then you might be wondering what does asset finance mean and how it can benefit your business.
Asset financing is becoming increasingly popular with companies that are looking for a more cost-effective way to provide capital for acquiring or replacing valuable equipment.
There is a range of different asset financing options available, each with its own benefits and drawbacks that should be carefully considered before any decision is made.
What is asset finance and what are some of the benefits it offers to businesses?
Asset finance is a type of financing that can be used by businesses to purchase or lease physical assets. It enables companies to make purchases without using their existing cash reserves and allows them to spread the cost of acquisitions over time rather than paying for them upfront.
The main benefits of asset finance are:
- Reduced cash flow pressure – Asset finance requires a smaller upfront payment than other forms of finance, meaning businesses don’t need as much funding immediately available to meet their obligations. This makes it easier for firms with limited cash resources to acquire costly items such as commercial vehicles, machinery and equipment.
- Improved liquidity – As a business takes out an asset loan the freed-up amount can then be invested elsewhere such as in personnel or operations costs, allowing improved liquidity which is crucial when managing long-term projects.
- Upgraded equipment/tech – Businesses are always looking for ways to improve efficiency through updating outdated hardware and systems with modern solutions but can struggle to afford these capital investments all at once; however, customised asset loans give companies access to cutting-edge technology without putting excessive strain on finances in one financial year.
How does asset finance work and how can businesses use it to grow?
Asset finance can provide businesses with fast access to working capital since it does not require up-front payment or commitments from credit facilities. With asset finance, businesses can make a downpayment on an asset – often as low as 10% of its value – and then spread the remaining cost over an agreed term that they are comfortable with. This allows them to buy the assets they need without taking on too much financial risk at once.
In terms of how businesses use it for growth purposes specifically, asset finance enables them to invest in newer technologies and solutions tailored specifically for their industry while stretching out payments into manageable instalments at the same time.
It also helps reduce operating costs by allowing companies to take advantage of attractive upgrade opportunities throughout their operational life cycle instead of spending it all upfront; this boosts efficiency and keeps operations running smoothly over time.
What are the different types of asset finance products available?
- Equipment Leasing: This is one of the most popular asset finance options for businesses. With an equipment lease, a business leases out any piece(s) of capital equipment in exchange for fixed periodic payments over a set period; at the end of that period, they have full ownership rights over the machinery or vehicle (a process known as “leasing out”).
- Hire Purchase Agreements: A hire purchase agreement allows businesses to use capital goods while making regular payment instalments before finally owning them after all dues have been settled by the buyer. In this type of loan agreement, a deposit may be required upon signing up followed by instalment payments until all dues are paid off; when this happens, the title is transferred from lender/seller (hirer) to borrower/buyer (hiree).
- Operating Leases: An operating lease is similar in structure and function to an equipment lease but there are some key differences between them. Under an operating lease agreement, instead of purchasing outright ownership at contract maturity, you rent being able to transfer the majority risk associated with using and maintaining the assets to your leasing partner during the contract term instead.
How to go about getting asset finance for your business?
The first step when exploring asset finance options is researching potential lenders: compare products from banks/loan companies and specialised providers, as each offers different types of financing depending on the company’s requirements.
Make sure you understand how much interest you’ll be charged and how long the term of repayment lasts – this information should all be clearly presented upon application and help you determine whether the loan represents good value for money for your business needs.
Additionally, it’s important to check if there are any additional fees involved such as set-up fees or early repayment charges so that you don’t encounter hidden surprises when taking out an asset finance agreement down the line.
If you reached the end of this article, you should have a basic understanding of what does asset finance mean, however in case of any further questions you might need to be answered, we recommend some more research before making the final decision!
