Running a business takes a lot of time and energy to run, but it also requires a good amount of financing behind it too. You might want to look at a merchant loan advance if you don’t fancy taking out a loan, as they allow you to have flexible repayments based on your credit and debit card sales. Another type of finance that can be useful for businesses is asset finance. In the same way you might get a phone contract, you’re able to have the equipment upfront without paying the full amount, and instead pay it off monthly. Utilising asset finance allows your business to have access to equipment straight away without having to try and save up for it. So, if you’re interested in asset finance, keep reading and discover if it’s right for you.
What Can I Get On Asset Finance?
When looking to finance assets, they usually fall into two categories: hard assets and soft assets. Hard assets are things like vehicles, machinery, and equipment. These assets tend to be of a very high value and can be hard to obtain without finance. Soft assets are things your business needs like computer hardware and software and office furniture. These assets tend to be lower in value and won’t have much of a resell value once your finance agreement is up. When you apply for asset finance, you’ll have to demonstrate that your chosen asset is durable and is saleable.
How Does It Work?
You can use asset finance to purchase, borrow against, and lease assets that your business needs. Typically, you’ll take out your asset finance through a financial or equipment provider, or a broker. When you want to purchase hard assets, the lender will purchase the equipment for you and then essentially rent it back to you. You’ll then pay monthly payments back to the lender, plus interest until your agreed term is up. Usually, you’ll have a fixed interest rate so that your repayments stay the same during your term. Once you’ve paid off the asset, lenders will allow you to either buy the asset from them for a reduced rate, renew your agreement, or return it back to them.
Types Of Asset Finance
Asset finance is a very general term for all the different types of finance available. When it comes to asset finance, you can choose from: hire purchase, equipment leasing, contract hire, operating leasing, and finance leasing. Hire purchase is probably the most common method of asset finance that you’re aware of. Hire purchase allows you to buy an asset by making monthly repayments during an agreed term. Once you’ve completed the repayments then the asset is now yours to keep. Equipment leasing is when the financier buys the asset you need and rents it to you for a price. The lender will be responsible for any upkeep and maintenance which is why a lot of businesses prefer this option. Especially if the equipment is expensive, repairs can set you back, so equipment leasing can be a great way to avoid this.
Contract hire is solely for leasing company vehicles. The lender will purchase the vehicle you need and then you can lease it from them. Similar to equipment leasing, contract hire keeps the responsibility for maintenance of the vehicle in the lender’s lap, saving costs for you. Operating leasing is when you lease an asset for a shorter period of time and repay a lower amount back. This can be things like specialist equipment that you don’t need forever so it can be a fantastic way of getting the things your business needs temporarily. Finance leasing is when you lease an asset for its entire life span. When going down this route, you’ll make monthly repayments and you’ll be responsible for any upkeep it needs. You’ll typically keep paying it off until about 90% of its overall value. Then, the lender might offer you some of its value once it’s been sold, but you aren’t able to actually buy it from them.
How Long Does It Last?
The length of your agreed term will be totally dependent on the value of your chosen asset and how much you can afford to pay back. If you can’t afford super high repayments, then you’re more likely to have a longer agreed term. Typically, an asset finance term lasts for at least one year, and no more than seven.
How Much Can I Get?
Asset finance is designed to help businesses access things they need that are of a high value and are things that they might not necessarily be able to purchase outright. You probably won’t be able to find finance for assets above £10 million, but there probably isn’t much you’d need at that price anyway!
Benefits Of Asset Finance
There are lots of benefits when opting for asset finance. Not only are you able to have access to things you might not be able to afford outright, but certain types of finance ensure you don’t have to pay any maintenance costs for the asset. Fixed monthly repayments also allow for your business to stay on track with its budget as you won’t need to worry about rising costs. Over time, things do start to decrease in value, but when using asset finance, you don’t need to worry about that because it will be a loss for the lender, not you. Generally, you can utilise asset finance no matter the size of your company, so it can be a brilliant option for small businesses that need a head start.
Should I Get Asset Finance?
Ultimately, the choice is yours as to whether or not you want asset finance for your business. There are so many benefits to using it and it can really help encourage growth for your company. If you don’t want to just have a lump sum of cash in the form of a business loan, then you may want to look into asset finance instead. You don’t need to worry about increased interest rates or repayments, so you can be sure that you’re not overspending. When deciding if asset finance is right for you, spend some time researching the providers out there and what sort of repayment terms they offer. This can be a good deciding factor, as you might find out you don’t actually need it. Or you may discover the perfect provider for your business, enabling you to reach levels of success you didn’t think were possible!