Navigating the vast landscape of business finance options can be overwhelming. Traditionally, if a business owner is in the market to raise funding the first product that comes to mind is a business loan. In many instances, a term loan is the most appropriate funding solution for the need of a business. However, sometimes other finance products are better suited, more flexible and have a faster turnaround. One example is Asset Finance or Asset Based Lending.

If your business is in Retail, Manufacturing, Construction, Transport, Distribution or Services, asset finance is a key finance option to grow your business. Asset finance rates are not comparable with unsecured finance facilities (such as a traditional bank loan) however in many instances businesses  may not qualify for those sort of finance products with the main reasons being:

  • Short trading record (less than 2 years)
  • Poor credit score
  • Lack of solid  financial forecasting

Asset finance by the very nature is using assets such as vehicles, machinery, equipment, property, plant and stock to secure against. In other words, a finance provider is using your designated assets as collateral. The arrangements are always the same: Instead of buying the asset outright, you enter into a hire agreement with a funder. A monthly repayment sum is agreed for a period of time that usually ranges from 1 to 7 years.

Asset finance is one of the most flexible funding solutions out there. For one, it gives you the opportunity to acquire high quality equipment or machinery that would have otherwise been out of reach of your budget.

As the lender is carrying the risk you will not need to worry about replacing broken down machinery or equipment.

If speed of funding is important to you look no further. Asset Finance can boast a quick turnaround of days and weeks rather than months. As your assets are used as collateral the added security ensures a faster lending decision.

You probably haven’t thought about how asset finance can lower your tax bill. The beauty with this sort of finance facility is that repayments are categorised as lease expenses which can be fully deducted from your profits.

Unlike other funding options, asset finance also provides a protection against a volatile economical environment as you will not need to put your personal assets such as your main residence on the line as you are not personally liable to pay back the amount lent in case of a default.

Asset finance has many advantages but there are a few things to consider before going ahead and making an application.

Firstly, as much as this sort of cash injection provides you with a way to lower your tax bill it prevents you from claiming capital allowances on leased assets if the lease period is less than 5 years.

In the long-run it can be more expensive than buying the asset outright especially because long-term contracts can be difficult to cancel early.

You should also read the fine print and don’t hold back on asking questions and clarifying on points you don’t understand as many contracts deliberately contain financial terms that sound foreign and intimidating.

As always when looking for a funding solution, you need to compare different rates in order to find the best deal availabe.. If you would like to learn more about Asset Finance or make a funding application you can read more here

Chapman Robinson & Moore and our friends at Finpoint are here to answer any questions you might have. Please do not hesitate to contact us.

This was a guest blog provided by our partners, Finpoint.

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