An asset finance company provides funding for equipment, machinery and soft assets that are essential for a business to operate and grow. It can be used by a range of businesses from sole traders to large limited companies. This flexible funding option can offer hire purchase, lease finance or operating leasing, as well as sale and lease back arrangements and unsecured loans. This type of financing can help to reduce upfront costs, free up working capital and spread the cost of high-value items over a fixed period.
Why do businesses use asset finance?
For a start-up or early-stage business, buying the necessary equipment, machinery and vehicles can be expensive. This is especially the case if a new asset is required for a specific project or business expansion. Many small to medium-sized enterprises (SMEs) struggle to afford these investments without putting their cash flow at risk. Using asset finance to acquire the required assets can help them grow sustainably and avoid tying up crucial investment money.
When a business uses asset finance, it can typically benefit from a quicker application process, meaning that the asset will be available for use more quickly than if the business paid for it outright. A fixed payment term also makes it easier for a business to budget and plan for the cost of an asset over time. Using an asset finance provider can also be a tax-efficient option as all lease payments can be written off in the accounts alongside loan interest.
An asset financing company can be a lender, supplier or broker and offers a wide range of leasing options. If the asset is a physical item like machinery, vehicles or office equipment, an asset finance company will usually buy and own the asset and then rent or lease it to the business for a set period of time. In this type of arrangement, the leasing company will often be responsible for maintenance and repairs.
In a sale and leaseback agreement, the business sells its hard asset to a specialist financing company in exchange for an agreed lump sum. The finance company then leases it back to the business, which can continue to use it during the repayment period, before finally reclaiming the asset at the end of the lease.
For softer assets like software, IT, intellectual property and even furniture, asset finance can be offered as a lease or rental option. The provider will source and maintain the assets, while the business pays a monthly rent or rental fee to use them. It can be a cost-effective way for a business to have access to the latest technology and a more manageable repayment option than purchasing it outright or relying on credit cards.
As with any financial product, it’s important to always read the small print before making a decision on which type of asset finance is right for your business. The best providers will be able to offer competitive terms and tailor their packages to your needs. It is also worth remembering that an asset finance company may have limits on the usage of a particular piece of equipment, such as annual mileage for vehicles.