Asset Finance: What is it and why does your business need it?
What is Asset Finance?
All businesses will at some point need to make investments into costly assets such as new machinery, equipment and computers; in order for their business to operate and grow.
Committing a large amount of cash to an asset can be risky for a business where ‘Cash is King’. Asset Finance allows a business or entrepreneur to spread the cost of an asset over an agreed period of time, so the business is paying manageable monthly payments. This means that the business is able to use the asset that you need immediately without the cash flow taking a hit.
Another way, in which Asset Finance works, is where a business is able to borrow money using some of its assets as the guarantee. This can be a low risk way to obtain a cash injection to a business quickly.
How will Asset Finance benefit your business?
If you are considering Asset Finance but are not sure if it will help your business then the benefits listed below may be helpful in deciding if it is right for you.
• Asset Finance is a relatively quick and easy way to gain access to funds. • You are able to choose the length of time that you wish to lease the equipment for. This is particularly useful if you need a piece of equipment for a short term project. • When you purchase an asset it can quickly depreciate so when the time comes for you to sell it, you may be making a loss. However by choosing a finance lease or operating lease then you are paying as you use it, with the option to upgrade to a newer version at any time. • By using Asset Finance you are able to purchase the new equipment or vehicle that you require without damaging your cash flow. • It is an easier way to access the fund that you need to purchase the assets compared to getting a loan from a bank. • Certain types of asset finance can be included in your capital allowance. This is a set amount of money that a UK business can deduct, from their overall corporate or income tax on profit. • Having a fixed monthly amount that you are paying back can help with budget management, allowing you to plan better for other events.
What are the different types of Asset Finance?
There are many different types of Asset Finance that suit a range of different situations and companies. Here is a brief introduction to the different types of Asset Finance available:
Hire Purchase
This is the most common type of Asset Finance and is often the most easily available. It allows a business to hire the asset they require from a leasing company. The leasing of the asset will be for a fixed period of time and will require regular payments; most commonly monthly. The terms will be agreed upon taking out the Hire Purchase. Typically you pay a 10-20% deposit for the asset; however this can vary between providers.
Once you have reached the end of the agreement you will have the option to transfer the title of the asset so you are the owner. While this is normally complimentary, some companies will charge a fee.
Lease Purchase
A lease purchase is split into two options, Finance Lease and Operating Lease. People are often confused as to what the differences are, the simple answer is:
With a Finance Lease all the risks and rewards of ownership of a leased asset can be transferred from the lessor to the lessee. Meaning that when the lease expires, the lessee can have the legal ownership of the asset transferred. Whereas an Operating Lease the risk and rewards that accompany ownership remain with the lessor. This means that the lessee only has the right of use and at the expiration of the agreement the asset will be returned to its lender.
Whilst similar to Hire Purchase, with Lease Purchase you do not tend to pay a deposit, instead this amount is included in the total amount you owe and added to your monthly repayments.
Asset Refinance
This type of Asset Finance allows you to quickly access additional funds helping your business to avoid any cash flow problems. It involves a business selling their asset to a leasing company, and then paying the company regular payments in return for use of the asset.
Capital is released from fixed assets, allowing businesses to improve their cash flow and repay outstanding debts or fund expansion. Asset Refinancing is often referred to as ‘Sale and Leaseback’ or ‘Sale and Lease Purchase Back’.
Vendor Finance
This refers to when a business purchases an asset from the seller and pays the balance to the seller over a specific period of time. In some instances there is interest added to the amount repayable to the provider of the vendor finance.
Import Leasing
Import Leasing is used for companies that are purchasing an asset from a country outside of the UK. The company offering the Import Lease will purchase the asset on your behalf from the overseas country and then lease it back to your business, meaning that you will pay for it in regular monthly payments.
If you would like to find out more about any of the types of Asset Finance and how they will work for your business then please feel free to get in touch with KDW Commercial. We would be delighted to discuss the options with you.
How can KDW Commercial help?
KDW Commercial, launched in 2015, aims to provide our clients with a smarter alternative to banks, when arranging finance for business owners and entrepreneurs. With access to the entire financial market we are able to provide the best solution for your business while saving you time and money.
We will be able to advise you if Asset Finance is right for you and if so we will source the best solution for your needs by:
• Sourcing funds that may not have been viable by traditional options • Enabling you to use your assets despite not owning them. Freeing up working capital for alternative uses • Find a flexible funding profile that allows you to match your repayments to your cash flow cycle. • Simplifying your finances
Instead of spending time trying to find the best Asset Finance solution, let KDW Commercial do the hard work so you can carry on spending time on what matters most – your business.
Get in touch with us for an initial free, no obligation consultation.
Please email commercial@kdw.co.uk or call 01727 85 22 99