From stock to vehicles to machinery, asset finance can help your business get what it needs to grow, without spending a lot of money up-front.
Asset finance can mean a range of things, including hiring something temporarily or spreading the cost of a new item you’ll eventually own outright. It can also help you make the most of existing assets – where you unlock cash in something you already own and borrow against it.
Either way, asset finance allows you to get hold of important resources in a way that doesn’t put a strain on cashflow.
How does asset finance work?
The most common forms of asset finance are hire purchase, equipment leasing and asset refinance. Here’s a few examples to show you how each type works:
Hire purchase: Hire purchase is like a mortgage – you can spread the cost of an asset over a set period of time and once you’re all paid up, it’s 100% yours.
Hire purchase agreements are usually at a fixed rate, which can help with planning future expenses and budgeting.
Equipment leasing: Leasing is more like renting. At the end of the agreed term, you could upgrade to a different model, continue leasing the same thing, switch to a new agreement and pay what’s left until you own it, or simply return the asset.
Lease agreements also tend to be at a fixed interest rate, which again can be useful in terms of cashflow.
Asset refinance: Asset refinance is like remortgaging your house. Here, you can release cash in something you already own and use the money to consolidate debt or as security for a business loan.
If you’re refinancing an existing asset to take out a business loan, different lenders will have their own policies, but they will usually lend up to 80% of your asset’s value.
Who is asset finance for?
Updating equipment, machinery or another asset can be very expensive. And if you need something new urgently, it can be even more challenging to stump up the right amount of cash quickly.
Asset finance can be a good solution to these problems. It’s a type of borrowing used by businesses of all sizes, including small businesses and sole traders, who are looking to acquire a new asset that might otherwise be out of reach.
Asset finance is particularly common in asset-heavy sectors like logistics and construction, which tend to deal with lots of equipment, machinery and vehicles.
What do businesses use asset finance for?
There’s a whole range of scenarios where the need for asset finance might emerge. You could need a new piece of equipment to fulfil an order, to keep production going while existing machinery is repaired or to expand your fleet of vehicles and grow your business.
During the pandemic, many businesses have used asset finance to invest in stock, machinery or a new space, so they can make the most of reopening.
What are the advantages of asset finance?
As with all lending products, asset finance has its benefits and drawbacks. These are some common reasons why it can be an attractive option:
1. Free up cash: When you have a limited supply of cash, reserving money for day-to-day operating costs rather than new equipment can be a real bonus. Asset finance can allow you to spend less up-front and budget more easily.
2. Stay flexible: Asset finance means you only have the asset for as long as you need it, so it can work well for short-term projects and contracts. Plus, if a newer model of a piece of equipment you’re using becomes obsolete, you can replace it with a newer one more easily.
3. Easier to access: Asset finance can be easier to obtain than traditional bank loans, as the asset itself is usually used as security.
What are the disadvantages of asset finance?
Depending on what you need funding for, asset finance may not be right for your business. Here’s a few of the disadvantages to be aware of, to inform your decision-making:
1. You could lose the asset: The downside to the asset itself being security for the loan is that you could lose it if you don’t pay, which could impact what your business can deliver.
2. The asset is your responsibility: You’re liable for maintaining the asset while it’s under your care, including repairs if something happens to it.
How can I access asset finance for my business? Both high street banks and alternative lenders offer invoice finance, plus it’s included in the new Recovery Loan Scheme. At Fluidly, we save you the hassle of trawling through lots of different options. We work with over 40 lenders and can help you figure out what product is right for your business, so you can get the cash you need more quickly. View your options in 30 seconds with Fluidly