Simple Series: Asset Finance
Welcome to the first installment of Channel Finance Group’s Simple Series. As our slogan suggests, we want to help make your financial decisions and growth as simple as possible and so we will be sharing a guide to each of the services we offer. This complete guide to Asset Finance provides you everything you need to know in one simplified guide to help you decide if this is the best option for you to expand your business.
What is Asset Finance?
A basic overview of asset finance is when a finance provider supports a business purchase assets or equipment which will be used to grow the business. The business then makes repayments, usually with interest, over a certain period of time before taking ownership of the asset.
Asset finance allows you to purchase the equipment your business needs to expand and increase productivity without impeding your cash flow. It can also allow you to release cash from the value in assets you already own or use your existing assets as security against a business loan from an asset finance lender.
What types of asset finance are there?
There are several ways to finance your assets, each offering different benefits so its important to understand which type is best suited to your needs. The overall structure of most forms of asset finance is as described above but the following outlines key differences between the various types of asset finance available.
Hire Purchase
Hire Purchase means that the purchase provider retains ownership of the asset and leases it to the business over an agreed period of time with fixed repayments. Often the business will have a large initial payment and then smaller continual payment for the rest of the term. Once payments are completed, the business would then have the option to purchase ownership of the asset outright with another payment.
Finance Lease
In this scenario, the business would only ever be renting the asset(s). The business will make agreed upon repayments until they have recouped the purchase value of the asset. Sometimes, the finance provider may allow the business to share a percentage of the cost of sale value once the asset has been resold but the business does not have the option to purchase the asset.
Equipment Leasing
As with finance leasing, the provider purchases equipment and then rents it to the business for an agreed price over a certain period of time. When the period ends, the business can upgrade the equipment, extend the lease, purchase it for an additional cost or return it to the provider. Where this really differs from other types of leasing is that the maintenance and servicing costs for equipment leasing fall to the provider to cover.
Operating Leasing
This tends to be used for specialist equipment or machinery that the business may only need for a short period of time or has no intentions of purchasing. The rental costs for operating leasing are determined by the length of time the business will require the equipment. It is often cheaper than equipment leasing as the business is only paying for the calculated value of the equipment for the short to medium term agreed.
Asset Refinancing
This is when a business uses assets it currently owns or part-owns as collateral for securing a loan. Assets such as property, vehicles, equipment, and accounts receivables qualify for borrowing through asset refinance. Lenders will evaluate the pledged assets and create a loan size based on their value.
What assets can be financed?
The types of assets considered viable for asset finance are not on a singular list and are dependent on the business and lender appetites. Most assets can be split into two categories: hard or soft. Traditionally, the market focused on hard assets which refers to durable, physical equipment such as machinery or vehicles. However, ‘soft assets’ are becoming increasingly common for lenders to finance. Soft assets are items with a low open market resale value. These are generally considered to be unsecured and so the businesses credit profile is of more importance.
How long is asset finance for?
Typically, the length of any asset finance agreement – especially that which involves the purchase of a particular piece of equipment – will be governed by the operational lifetime of the asset. Generally, this will tend to be between one to seven years, although the length may be shortened or lengthened at the discretion of the finance provider.
Is it right for you?
Asset finance is suitable for a range of businesses including sole traders, SME’s, and larger corporations. It is designed for businesses who need to acquire an item that is of high value to support the business. Business asset finance is typically attractive to businesses who want to put their growth plans into action but don’t necessarily have the ready cash, or business owners who would rather spread large costs over a longer period.
The ability to acquire an asset with limited upfront costs offers businesses flexibility with cash flow and can create more structured budgeting. Providing businesses with the opportunity to gain access to the latest technology makes expansion and growth more viable and in a shorter time frame. If this sounds like something your business may need to kickstart its development, then contact us to find out if you are eligible.
Key Benefits of Asset Finance:
Things to look out for:
How to Apply?
1. Send an enquiry to enquiries@channelfinance.co.uk to find out how we can help you.
2. Application – an application for finance will be submitted to an underwriter.
3. Approval – Finance approved. A copy of your finance agreement will be sent to you for completion.
4. Payout – upon receipt of your signed agreement we process, activate and release funds.
Want to know if you’re eligible? Call us today.