Asset finance is a facility that is used by businesses to obtain the equipment they need in order to grow seamlessly, and it’s evident that decisions to replace assets which are in need of replacement are increasingly being taken.
Keeping it simple
Compared to traditional financing methods, asset finance is bespoke as it is secured by a particular asset, whereas traditional banking is secured by way of personal guarantees. The most common types of asset finance involves leasing or ‘lease-like’ structures, such as hire purchase agreements and operating or finance leases.
In addition, asset finance can often work out cheaper than other bank finance because it is secured by a specific asset and, generally speaking, the set up process is relatively straightforward and the credit process tends to be quicker. In other words, asset finance is not intrinsically complicated and should be kept that way, because essentially clients just want to know what they are paying for and how it works.
One of the key advantages is that it gives businesses access to necessary equipment without incurring the cash flow disadvantage of an outright purchase. Businesses can also benefit from asset finance as it releases tied-up cash, minimises ownership risk, adds to the financial value of business assets and allows flexibility on both the terms and repayment schedule.
Clients can agree a credit limit which allows them to purchase plants, machinery and equipment within that set limit, and they do not have to constantly keep revisiting their bank. However, it is important to remember that the vast majority of assets will be new or nearly new and it can be a challenge to get asset finance on an asset that is over a certain age, but of course it varies on a case by case basis.
Investing in the future
In terms of SMEs, it is likely that when starting up or expanding, investment into assets such as machinery and vehicles and everything else in between will be required. However, there are some small businesses which are unaware or have limited knowledge of asset finance and its benefits. This is surprising as these are substantial investments for businesses, particularly SMEs, and can put strain on a business. It is therefore time that small businesses familiarised themselves with the potential advantages of asset finance.
In my opinion, asset finance has continued to be a breath of fresh air among many businesses in recent years, which is especially the case in an era where bank funding is proving harder to come by. As a result, an increasing number of businesses are viewing asset finance as a genuinely affordable solution to their business equipment investment needs, and a healthy rate of growth looks likely to continue in 2016 and beyond.