What is Asset Finance?
Asset Finance is a form of borrowing used to invest in purchasing replacement/new equipment. If your business needs to invest in new machinery, tools, vehicles or other assets, this form of financing allows you to spread the cost of your investment over time. As well as purchasing new equipment, you can also use asset financing to release equity from existing assets.
Most businesses will need to invest in equipment to assist with growth. Asset financing makes this investment more manageable (or even possible) by spreading a large capital outlay across months or years, breaking the payment down into manageable monthly amounts. Without asset finance, a business may face having to halt growth whilst cash is accrued, which it can then use to purchase new equipment.
Asset finance gives businesses access to equipment without putting up security, compared to a traditional lender, e.g. a bank, which would require additional security and therefore may exclude many companies who do not have access to the required levels of security.
What are the benefits of Asset Finance?
Repayments in manageable regular payments
Asset finance allows business owners to invest in their business whilst maintaining healthy cash flow & offers set monthly repayments for budgeting.
Possible tax advantages
Asset finance can offer potential tax advantages; however, we recommend that you seek professional advice from your accountant regarding this.
If repayments become unmanageable, you have an asset you can use to repay the debt.
Asset finance can be quick to arrange.
Asset finance may not affect other lines of credit from core banking arrangements.
What types of asset financing are available?
Hire Purchase (HP)
Monthly payments for 1-5 years. At the end of the agreement, you will own the asset or be given the option to purchase it. HP is useful for when the asset you are buying will retain value after the 1-5 year repayment period. Generally, a higher upfront amount is paid for HP than lease financing, with the remaining balance of the purchased asset being paid back at an agreed interest rate.
Effectively equipment rental, which is paid for every month, again typically for 1-5 years until the expiry of the financed equipment, repayments are typically offset against your business’s taxable profits. Generally, a lower upfront payment is required compared to Hire Purchase, and at the end of the agreement, you can rent the asset from the financier. Under a finance lease, the lessee’s balance sheet will show the asset, with monthly repayments shown as a liability.
Typically used for vehicles, the borrower makes monthly repayments for the contract duration. At the end of the agreement, the borrower returns the vehicle to the lender. If a vehicle is solely for commercial use, businesses can claim up to 100% of the VAT paid. Even if your vehicle is partially for private use, the borrower can reclaim up to 50% of the VAT..
Asset financing that lasts for just part of the asset’s useful life. When the asset goes back, the lessee pays a sum to the lessor, equating to the difference between the asset’s original value and the residual value. Operating lease items are an off-balance sheet form of financing meaning that the asset value and the repayments do not appear on a business’s balance sheet, keeping the ratio of debt to equity low.
Typically used for companies with poorer credit ratings, refinancing enables businesses to change their payment schedule and release capital currently locked into existing assets. Lenders can offer to refinance even if money is owed on previously financed assets.
What costs are involved with Asset Financing?
Asset Financing costs start from as little as 2%. The simplest way to get an accurate price is to compare quotes.
How does Quote Goat help businesses find asset finance?
We have partnered with a market-leading business finance comparison solution, allowing our customers to compare asset finance quotes from multiple lenders. As well as asset finance, you will have access to free expert advice to help you pick the best funding solution for your needs at the best rate.
Compare quotes for Asset Finance
It takes less than 3 minutes to get an asset finance quote.