Asset Finance Explained

Asset Finance Explained
 04 December 2019

Put simply, Asset Finance is a way that a business owner can raise money to buy or pay for things without having the cash up-front.

You could use the money to buy physical things like equipment, plant or machinery or for other purposes such as buying another business, paying important tax bills or improve the general cash-flow of your business.

Asset Finance is effectively a loan that you payback over a fixed period of time. This money can be used for many different purposes to help you run your business in a better way or relieve the pressure of unexpected costs on cash-flow in an affordable way.

What are Business Assets?
All businesses have assets. These are the things your business owns but doesn’t sell. They are usually physical things like desks, chairs, computers, plant, machinery, technology or vehicles.

Asset based finance for current and new assets
Asset based finance can be used to refinance existing assets or buy, hire or lease new ones.

You could refinance equipment you already own and release funds into your business for other purposes or use it to buy, hire or lease new equipment.

If you want to release funds from existing assets, you could simply sell it to a lender who then leases it back to you or you could simply use it to buy, hire or lease new assets.

Types of Asset-Based Finance

Hire purchase
This is a very popular.  You buy the asset and simply pay for it in instalments. This way, you can get the asset immediately but spread the cost over time. Once you’ve completed all the payments, you’ll have full ownership of the item. HP agreements usually last between one and six years.

For this kind of asset lending, you would be expected to pay a deposit before the fixed monthly instalments. You’ll also be responsible for maintenance and insurance costs of the asset.

Equipment leasing or equipment financing
Don’t want to buy the asset? Why not look to lease the asset from a lender and pay monthly instalment for the time you are using it. You don’t ever own the asset but you get the full benefits of the asset for a fraction of the total amount normally required to buy the asset

At the end of the lease, you have a number of options. You could continue to lease the asset, buy it outright at an agreed price, upgrade it, or return it if it’s no longer required.

Flexibility is a major benefit of leasing assets so your agreement can change in line with your business needs.

Asset Re-financing
If you have already purchased assets for your business you may want to release funds from them. In this way, the lender buys your asset and leases it back to you over an agreed period of time.

Operating Leases
Similar to standard finance leases, but the Company leasing you the assets is also responsible for the maintenance cost of the asset.

Finance Leases and Capital leases
Finance and capital leases are a type of asset finance where you get full use of it of the asset and pay the full value for. You don’t own it but pay smaller monthly instalment back usually over a longer period of time.

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