ASSET FINANCE
Asset Finance
Asset Finance is a type of business equipment financing that enables a business to purchase equipment, machinery, vehicles or fit out whilst preserving valuable working capital. Spread the costs of the purchase into fixed periodic payments. Additionally, asset finance can release cash tied up in your existing assets.
Asset Finance allows your business to acquire the assets it needs to trade efficiently without the need to pay-out a lump sum allowing you to manage cash-flow. The financier will buy the equipment, and expect you to pay a periodic fixed payment over an agreed term.
The financier will have the title of the asset until the repayments are completed.
There are 2 types of asset finance:
Lease Agreements
Where a business pays for the use of equipment over a period of time
Purchase Agreements
Where the customer intends to own the asset at the end of the agreement
Asset finance can be used to fund all different kinds of assets; commercial vehicles, cars, plant and machinery to name a few. It can also be used to fund less obvious ‘soft’ assets such as office furniture, IT and vending equipment.
In order to fund against an asset they need to be:
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Durable
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Identifiable
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Moveable
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Saleable
Advantages of Asset Finance
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Releasing cash for your business via sale and leaseback
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Allows you access to new equipment and machinery without the cash flow burden
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Spread the cost of new assets over a longer term
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Maintenance packages are often included
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Easier to obtain than a traditional bank loan – the asset acts as security
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Fixed monthly repayments – no surprises to cash flow
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Failure to pay results in the loss of the asset – no additional security such as property
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Agreements generally have fixed interest rates
Disadvantages of Asset Finance
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With interest payable, you will pay more than the value of the asset
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Failure to pay could result in the loss of a key asset impacting the ability to trade
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Valuations of assets vary, so if looking to raise finance against an existing asset, you may not be able to raise as much as you hoped
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Other than maintenance, the chances are you will need to fund any repair yourself
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Some forms of asset finance will not give you the option to buy, meaning you will never own the asset
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As you are not paying for the asset upfront, it may tempt you to buy an asset that is not really needed
Frequently Asked Questions
What is Hire Purchase?
Hire Purchase allows you to spread the cost of buying an asset over several years. A deposit will be payable, but the balance can be spread over the term of the agreement.
You will not own the asset until toy have repaid the full amount due under the agreement and, where applicable, the final Option to Purchase Fee.
Do I have to provide additional security?
Generally, the asset being purchased is used to secure the loan.
What happens if I default under the agreement?
If you are concerned about meeting the repayments, please contact your lender without hesitation. They will look to discuss the situation with you sympathetically and positively. Ultimately, if you fail to meet the repayments, the lender has the right to reprocess the asset and sell it in order to repay the facility. You may remain liable for any shortfall.
What are the difference between the Asset Finance solutions?
Hire Purchase
Hire purchase gives you access to assets without paying for them outright upfront. You are effectively hiring the asset from the lender and make an agreed contractual payment.
At the end of the term, you own the asset.
Terms vary, typically between 1 and 6 years. A deposit is normally required at the start, and a fee to purchase the item at the end
Finance Lease
With a lease you do not own the asset, you are simply renting the asset from the service provider over an agreed term.
Similar with Hire Purchase, a deposit may be required at the start of the agreement.
Equipment Lease
Like a finance lease, equipment leasing lets you rent the asset from the financer and make agreed payments over a given term.
At maturity, you will have several options:
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Continue to lease the equipment
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Buy the asset
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Return to the provider
Not being the owner, normally maintenance and servicing is down to the provider, rather than you – albeit costs for this will be within the agreement
Asset Refinance
Allows you to use your existing assets to access funding.
There are 2 ways this can work:
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Use your assets as security against a loan. This puts the assets at risk should you default on the loan.
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You can sell the asset to the finance provider and lease back. Periodic repayments are made over an agreed term.