What is Asset Finance?
Asset Finance is a form of borrowing used to invest in the purchase of 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, asset financing can also be used to release equity from existing assets.
Most businesses will need to invest in equipment to assist with growth and 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 more manageable monthly amounts. Without asset finance, a business may be faced with halting growth whilst cash is accrued which can then be used to purchase new equipment.
Asset finance gives businesses access to equipment without putting up security, in comparison to a traditional lender, e.g. a bank, which would require additional security and therefore may exclude many businesses who do not have access to sufficient levels of security required.
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 cashflow & 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 that can be used 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 will be given the option to purchase it. HP is useful for when the asset you purchase will retain value after the end of the 1-5 year repayment period. Generally, a higher upfront amount is paid for HP as opposed to 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 on a monthly basis, again typically for a period of 1-5 years until the expiry of the financed equipment, repayments are normally 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 asset will be shown on the lessee’s balance sheet with monthly repayments shown as a liability.
Typically used for vehicles, monthly repayments are made for the duration of the contract. At the end of the agreement the vehicle is returned to the lender. If a vehicle is solely for commercial use, businesses can claim back up to 100% of the VAT paid. Even if your vehicle is partially for private use, up to 50% of the VAT can be reclaimed.
Asset financing that lasts until the expiry date. At the point of the asset ceasing to be useful 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 in to existing assets. Refinancing can be provided even if there is money left to 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 cost is to compare quotes from our panel of over 80 lenders, from high street banks through to specialised providers.
How Does Quote Goat Help Businesses Find Asset Financing?
We have partnered with a market-leading business finance comparison solution, allowing our customers to compare asset finance quotes from over 80 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.