How does asset finance work?

If a business needs to buy an asset, and would prefer to finance the purchase rather than use cash in the bank, asset finance allows them to purchase the item without making a payment upfront.

The business will pay a fixed agreed amount over a set period of time, allowing them quicker access to the asset, without having the cost of buying outright.

What can I use asset finance to purchase?

Asset finance can be used to purchase almost any physical item for your business. The most common purchases are ‘hard’ items like machinery, vehicles and equipment, but asset finance can also be used to fund ‘soft’ purchases such as:

• Solar panels

• Tills

• CCTV systems

• Furniture

• IT equipment

Are there different types of asset finance?

There are four main types of asset finance:

• Hire purchase

  • With hire purchases, a provider owns the asset and leases it to a business over the term of the agreement for regular, fixed payments. At the end of the period, a business may have the option to buy the asset outright.

• Finance lease

  • A finance lease varies in that the provider purchases the asset but the business only rents it. The business uses the asset, making regular payments to an agreed schedule. This tends to run until the provider has recouped the assets purchase value.

• Equipment leasing

  • Very similar to a finance lease, the provider buys the required equipment and the business pays a regular, fixed fee over an agreed period to use the equipment. At the end of the agreed period, a business then has the option to extend the lease, upgrade the asset, buy it outright or return it to the provider. Unlike hire purchase, if a business leases equipment, the maintenance and servicing costs are the provider’s responsibility.

• Asset refinancing

  • Asset refinance can be used to release cash into your business by unlocking cash from items your business already owns. You can refinance the asset at the end of the term, or you can refinance an asset that you already own or part own.

What are the advantages of asset finance?

Many businesses choose to purchase their assets using asset finance to free up valuable working capital.

Compared with traditional business loans, as the loan is secured against the asset, the rates tend to be more competitive.

It can also be used to secure additional funds against existing assets your business already owns.

Depending on the agreement you choose, there is a level of flexibility as you often have a few options at the end of the contract.

Can start-up businesses obtain asset finance?

Unlike traditional business loans, asset finance can be easier to obtain for new businesses.

Our lenders will assess the asset against their criteria (which is based on market value, depreciation rate and also resale value), and also consider future contracts that will bring revenue to the business.

For start-up businesses, the director taking the finance must be a homeowner.

Can I finance an existing asset I already own?

Absolutely. This is called asset refinancing and is a way to release some cash that could be tied up in things your business owns. It is an agreement where you sell the asset to your financing company for a price that is based on the current value of the asset. You then repay the amount loaned to you in instalments, over a set amount of time.

How do I apply for asset finance?

Once you have a quote, purchase order or invoice for your asset, you can approach a lender or a business loan broker for a finance quote.

If your business and the asset both meet their lending criteria, they will provide you with rates and terms. If accepted, the lender will then pay the supplier directly, and you can then complete the purchase of your asset.

By engaging a business loan broker, you only have to provide your information once, and they can use their expertise to match you with the best product and lender for your business needs.