How Does Asset Finance Work?

There are several different types of asset finance available and they all make it possible for businesses to access the assets they need and spread the cost over an agreed term. This takes the pressure off of the business’s cash flow.

Another use of asset finance is to free up capital from assets the business already owns, using them as collateral for loans.

So what is asset finance and how does it work?

Asset finance is a type of business finance, which allows companies to purchase the equipment they need, without a significant upfront investment. This type of finance is widely used by businesses that don’t have the cash available to buy the equipment they need to grow or would prefer to spread the cost over a longer period of time in order to maintain a healthy cash flow.

Asset finance can be used to fund anything from IT equipment and technology to vehicles and even buildings. Anything a business needs to carry out its daily operations can be classed as an asset, providing it has value.

Asset finance lets businesses access key assets, but pay in monthly instalments, making it ideal for businesses who want to access high-value equipment to help grow their business, while spreading the cost over an agreed term.

The finer details about how asset finance works depend on the type of asset financing.

This type of asset finance involves a finance provider buying an asset and then leasing it to a company in return for an agreed fee over a fixed period. The terms of the lease will vary depending on the lender and the value of the asset. At the end of the lease, you can typically choose to extend the lease, buy it, return it to the lender, or upgrade and lease a new model.

This type of asset finance is similar to equipment leasing, but it is typically used for specialist equipment or machinery that the business doesn’t need permanently. So an operating lease is for renting an asset over a short or medium term. The monthly payment amount is based on the length of the term, so that the business only pays for the value of the item over the period they are leasing it for, rather than its full value. Operating leases are different to finance leases.

With a finance lease, the provider buys the asset on behalf of the business. The business then pays the provider back in instalments, with interest.

Asset refinancing can work in two different ways:

• Using assets to secure a loan
• The business sells assets to a lender and then leases them back from the lender

With this type of asset finance, the business can continue to use their asset during the term of the finance agreement, while repaying the loan with interest.

Also known as vehicle asset finance, this type of asset finance is only used for financing vehicles. The provider sources the vehicles required, and the business then makes monthly payments over an agreed term.

During this time, any maintenance and servicing costs are the responsibility of the provider. At the end of the lease period, the car is returned to the provider.

The amount you can borrow with asset finance depends on the lender and your circumstances. Providing you can demonstrate that your business can repay it, it’s usually possible to find asset finance for anything from £1,000 to £10 million.

The rates available for asset finance can vary significantly depending on the lender, the term, and the value of the asset. However, because the loan is backed by an asset, the interest rates are typically lower than other types of business funding.

As with any secured loan, the assets are either loaned by or transferred to the lender until the finance agreement ends. If you default on the loan during the term of the agreement, the asset may be repossessed.

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. To find out more, get in touch today.

Our helpful, professional team is always on hand to answer any of your questions about asset finance.