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Asset Finance What Can It Do For You?

Asset finance can be a terrific means of helping your business develop. As an alternative to buying equipment outright, it can help with cash flow and give you options to top of the range equipment

For a lot of businesses, big or large the cost of buying brand-new assets outright can be a very costly procedure. For new businesses who are new to trading a major and necessary purchase such as equipment or machinery usually leaves a huge dent in an owner’s wallet and a business’s cash flow. Even for established businesses who have strong foundations expensive new assets will make a hit into cash flow.

But buying assets outright doesn’t always have to be the case. Asset finance can be a brilliant way of breaking up large payments, as well as allowing businesses to secure assets over a set period of time. Monthly payments are much more manageable, giving businesses the opportunity to adapt their cash flow and get assets.

There are several different types of asset finance, but generally they all have the same premise. Leasing and Hire Purchase are the two most common as each let you pay a monthly fee. The exact terms will always come down to the arrangement which is put in place with the selling company, but not only does asset finance stop a business taking hefty sums out of its profits, it also means there isn’t too much cash tied up in a single asset. Having a good flow of cash is essential, cash is key, so having affordable payments means managing cash flow much easier and offers greater scope to spread the cost of an asset.

Asset finance is effectively a form of lending. It enables a business to pay off their assets gradually over time. At the end of the contract a business will end up owning the asset. As well as asset finance easing cash flow, it gives businesses the opportunity to get the most up to date pieces of equipment, which they might not necessarily be able to afford as a one-off payment.

Hire Purchase & Leasing

Although leasing and hire purchase are similar, there is one major difference between them. Leasing is almost identical to hire purchase except, at the end of the contract instead of owning the asset outright, you can instead return it, upgrade it, or pay off the remainder of the contract to legally own the asset. Hire purchase, very similar except you will automatically own the asset at the end of the contract.

Pros of Asset Finance

  • With asset finance a business will have greater access to more expensive, better equipment which the business may not have been able to afford, if it were buying assets outright
  • As asset finance is paid in instalments, budgeting and creating cash flow forecasts is much simpler
  • For growing businesses or businesses looking to replace assets, it allows them to manage cash flow much more effectively and not spend large amounts of funds on brand new assets
  • For leased assets, if there are any problems, the leasing company will carry out maintenance used on the asset.

Cons of asset finance

  • If a business does not manage its monthly instalments, any assets can be taken away. It can also have a negative effect on the credit rating of the business, as well as future borrowing.
  • Failure to pay can result in items being repossessed
  • The length of some asset finance deals can be quite long, during which time new or better assets may have become available
  • If an asset is in the process of being paid off and it is damaged or stolen, the insurer may not cover the whole cost, with the business having to cover the shortfall

Although asset finance has its negatives. It can be a fantastic solution for businesses who are struggling with their cash flowArticle Submission, or are looking to replace equipment with top of the range assets.

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Sathesh is a business and finance writer from London

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