Asset finance is a type of business finance that enables companies of all shapes and sizes to acquire the business assets they need to grow by spreading the cost of purchase. This means that they can keep as much cash in their business as possible, which is crucial during those early years.
Many businesses use asset finance to purchase equipment and technology, including vehicles, machinery, and computer equipment, as well as other items they need, to run their business and optimise growth.
Asset finance offers a number of benefits. However, one of the main advantages is that it allows businesses operating across a diverse range of sectors to put their growth plans into action, without having to worry about finding large sums of cash or taking a large sum of money out of the business.
It also helps businesses in fast-paced industries stay up to date with the latest technological developments, without having to constantly invest in new tools and equipment.
Asset finance allows businesses to purchase physical assets by making regular repayments to the asset finance company. This helps them to manage their cash flow effectively and work towards their growth goals.
And, depending on your finance agreement, you might have the option to keep the item at the end of your agreement.
There are a range of different types of asset financing.
Depending on the type of asset finance software you opt for, you will either be able to return the item to the lender after the borrowing period, take full ownership of the asset, or swap it for a newer version.
Asset finance includes:
Equipment leasing is a type of lending that involves a lessor buying an asset with the intentions of leasing it to you for a monthly/quarterly/annual fee. Leasing equipment in this way allows companies to access the assets they need without having to take large sums of money out of their business. Different lenders have different lending terms, but once you have agreed on a lease term, you can usually upgrade to a new model, extend the lease, pay the remaining balance to buy it, or return the asset back to the lender.
A hire purchase transaction is where assets are purchased and sold on the terms that they will be paid for in instalments. This means businesses can access the assets straight away but any goods purchased in this way will remain the property of the vendor until the last instalment is paid.
A finance lease involves leasing assets over an agreed amount of time, depending on the asset type this could vary between 3 - 7 years typically.
During this period, the full value of the asset will appear on the balance sheet, with an element of the lease allocated as a business expense, which is then passed through the profit and loss account.
The finance company maintains full ownership of the item until the final payment has been made. At the end of the agreement, you can either return the asset, purchase it for an agreed fee, extend the lease, or return and refresh your equipment to the latest version(s).
An operating lease is an agreement where the lessor takes a residual value investment in an asset such as equipment or technology. At the end of the contract term, the lessee can either extend the lease, return and refresh to the latest equipment, return the assets or purchase the assets. This type of agreement is typically cheaper than using cash to purchase on day one.
An operating lease is also popular amongst those organisations looking to update their technology on a regular basis while also not having to pay the full capital cost of the equipment.
Asset refinance has been designed to allow businesses to release cash by using their own assets. This is also a great way to consolidate existing debt.
Many businesses need asset finance for a range of specialist purposes, such as equipment that is bespoke to their company needs.
From specialist farming equipment through to biomass boiler finance, this type of asset finance is generally offered by providers with expertise in the relevant sectors.
Any business, regardless of its size, can benefit from asset finance, especially SME’s looking to grow and access the equipment they need to do so. Allowing businesses to spread the cost of assets they need, asset finance is available to limited companies, public limited companies, and sole traders.
As a general rule of thumb, the vast majority of asset finance is usually provided over terms of between one and seven years. In some cases, depending on the lender’s terms, this can be longer. Agreed payment terms also vary depending on the terms of the contract.
Here at CHG-MERIDIAN, we can help you stay ahead of your competition with tailored asset finance solutions that keep you on top of the latest IT, healthcare and industrial technologies. If you want an effortless way to promote, inform or share your content, get in touch today.
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