What is Asset Finance?
Asset Finance is better known as Hire Purchase (HP) or Leasing. It is a way for businesses to spread the costs associated with expenditure on significant capital items. Whether you’re looking to purchase new plant & machinery, office equipment, vehicles, or simply to raise finance locked up in existing assets (refinancing), facilities can be tailored to individual requirements. Unless a business is extremely cash rich, it should avoid tying up large sums of capital with the outright purchase of an expensive asset. With fixed monthly repayments, cash management can be forecast more accurately and valuable day-to-day working capital preserved.
HP is probably the better-known type of asset finance. The customer pays an initial deposit and the finance provider purchases the asset for them. Payment instalments are made, usually monthly, to the finance provider who retains ownership of the asset until the final payment is made. At this point the customer will have purchased the asset having spread the cost of doing so over a manageable period, usually 3 to 5 years.
Leasing has two major variants. A finance lease covers the whole economic life of the asset, and whilst never actually owning it, the business will acquire all of the financial risks and benefits attached to it. Total repayments will be scheduled to cover the full value of the asset plus associated charges. An operating lease is generally a shorter form of agreement where the business will not be liable for repaying the full value of the asset as the lease will run for less than the working life of the asset. The finance provider retains ownership and all financial risks and benefits in the asset as it will usually have a resale value or can be leased again.
Asset Finance doesn’t just cover the purchase of new equipment. Some funders offer refinancing of previously purchased equipment under a sale and leaseback arrangement. If an asset has a value, you can sell it to a finance company and lease it back from them. The benefits of this are twofold; you get a welcome cash injection plus continued use of the asset.
Who can use Asset Finance?
Asset Finance is available to a certain level for almost all companies. Directors of younger or smaller companies may find that their Personal Guarantees will be needed to back a facility. More established companies that can prove the means to meet repayments will find this type of facility readily available for most asset classes. Some assets are more favoured over others; generally those with identifying marks and wheels are favoured, but there is almost certainly a leasing company that is willing to lend against the asset you wish to acquire (including intangibles such as software).