If securing the latest equipment is key to growing your company, but you don’t have the cash to pay for it upfront, asset finance could help. Alternatively, if you have all the gear, but not the capital that you now need to move your company forward (or stay afloat), then once again, asset finance could come to the rescue.
Asset financing means accessing credit which is secured against business assets. Most commonly, it allows your small or medium-sized business to obtain the most up-to-date equipment you need (vehicles, office equipment or tech), with little-to-no upfront payment. Instead, you’ll make smaller regular payments over a sustained period of time. Overall, you’ll pay more than it costs to buy the item outright. Still, it’s a useful option for businesses without the immediate funds to make large one-off purchases.
There are a number of advantages to using asset financing over traditional bank loans, although it’s certainly not the best choice for every business. Here’s a detailed guide to this type of financing, with useful pointers on how to find the best deal available to you.
Compare tailored asset financing options from a range of lenders
Finder has teamed up with Think Business Loans to help SMEs quickly find an asset financing solution that works for them.
The following are the three main types of asset finance:
The lender retains ownership of the asset throughout the course of the agreement. Essentially, you’re renting the equipment instead of buying it. These deals may be more suitable for highly expensive machinery, vehicles or property. If you only need assets for a short time period, this could be the way to go.
The lender retains ownership of the asset until the final payment is made. Here, your regular payments cover the cost of purchasing the item, plus interest. These deals are more suitable for basic office equipment or technology. If you’d ultimately like to own the assets you’re paying for, this is the option to choose.
Where you already own assets outright, this option lets you unlock their value to spend elsewhere. You’ll make regular payments to effectively buy back the assets.
How can asset financing benefit my business?
You could get access to the latest equipment without a massive initial outlay. This allows you to serve staff and customers to your maximum ability, and you don’t have to break the bank to do it.
Upgrade your equipment regularly. If you wish, you can upgrade to the latest equipment every time your current deal expires. In fact, with many hire purchase agreements, you can end the deal whenever you like, although you’ll lose the option to buy the equipment outright by doing so.
Make savings elsewhere in your business. In many cases, using new equipment can reduce maintenance and running costs and increase efficiency.
It’s easier to be approved for these type of financing agreements. As your loan is secured against the assets borrowed, it’s often possible to be approved without a great business credit score.
Most agreements come with fixed interest rates. Fixed payments make it easy to manage your budget over a long time period.
Maintenance might come free. With some leasing deals, the lender retains the responsibility for repairs.
Timely repayments will boost your credit score. This will make it easier to access better loans in the future.
What are the disadvantages of asset finance?
It’s more expensive than buying an asset outright.
Your assets will be repossessed if you fall behind on repayments.
It’s not always possible to cancel a long-term agreement.
Often, you’ll have to pay a deposit.
You can’t deduct the value of the equipment from your profits for tax purposes, nor claim capital allowances if the lease period is less than seven years.
How can I get the best deal?
Here are the main factors to bear in mind when comparing asset finance deals.
What do you want to borrow? Some lenders will only offer asset finance for specific items. Some specialise in finance deals on laptops and other tech products. Others only offer commercial fleet finance deals.
Finance lease or hire purchase? If you’re ultimately after permanent ownership of your asset, choose a lender that offers hire purchase deals.
Weekly or monthly payments? Some lenders offer the choice between weekly and monthly payments. Consider which option fits best with your cash flow, but also the overall cost of each.
Flexibility. Some lenders give you the flexibility to cancel your contract early. Others keep you tied in, no matter how your situation changes. Contract flexibility is useful in situations where you need to quickly reduce your outgoings or upgrade to newer assets.
The length of the deal. Broadly speaking, the longer your hire purchase deal, the lower your repayments will be, although you’ll pay more in interest overall. Ideally, you’ll want to pay off your debt as fast as you can afford to do so.
The cost of the loan. Some lenders will only advertise the cost of the weekly/monthly repayments, including the Representative APR. However, it’s best to compare the overall cost of the deal, as individual lenders might price their assets differently.
How does it work?
Usually, you can apply for asset financing deals via the lender’s website. The process only takes a few minutes, provided you have the necessary details to hand.
You’ll need to provide some basic information to identify your business, including your company type, business address and limited company number.
It may also be necessary to submit financial details, including VAT returns and bank statements. The lender will then complete a credit check on your business. Your business credit score is based on your previous borrowing history and helps the lender to evaluate whether you’re a risky prospect to lend money to. Your eligibility for the best deals will be based on this score.
You’ll typically be given an instant decision on your application. However, with some lenders, this may take up to three business days.
The bottom line
If your business needs quick access to the best equipment, but you don’t have the capital to buy it outright, asset finance can be a useful tool. For companies with highly irregular cash flows or bad credit, it can offer access to finance when traditional bank loans may not be an option.
Frequently asked questions
Due to the security involved, asset finance deals are typically easier to get approved than traditional bank loans. The application process is straightforward and the interest rates are sometimes more favourable. Plus, you may not have to worry about paying for maintenance. It’s worth comparing all forms of business finance though.
Each lender will have their own protocol for delivery of your assets. Check that this is suitable for you before applying.
With asset finance deals, some lenders will maintain responsibility for insurance and maintenance of your assets. With hire purchase deals, you’ll almost always be responsible for this and will want to ensure that your insurance protects your interests.
You can boost your credit score by making timely repayments on your existing loans. This includes asset finance deals. It will also be beneficial to ensure you don’t open too many lines of credit. You can check your business credit score through credit reference agencies such as Equifax, TransUnion or Experian.
Tom Stelzer is a writer for Finder specialising in personal finance, including loans and credit, as well as small business and business loans. He has previously worked as a freelance writer covering entertainment, culture and football for publications like FourFourTwo and Man of Many. He has a Master of Media Arts and Production and Bachelor of Communications in Journalism from the University of Technology Sydney.
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