Navigating the Asset Finance Process: A Step-by-Step Guide

Introduction

It is often the case for many industries that there will come a point where you need to buy new assets for your business. Whether you need to update your IT systems with new software and computers, you want to buy new top-of-the-range machinery for your factory or you are looking at purchasing some new vans. This article will provide a full, comprehensive guide to asset finance and the advantages and drawbacks that come along with it. Should you decide to go ahead with finding an asset finance deal, you will find out how we can help you with this here at Contact Business Finance.

Asset finance…what is it?

Asset finance is essentially a form of borrowing used to purchase assets. You are able to buy what you need and spread the cost, eliminating issues with cash flow. There are different options to choose from when considering asset finance, including whether you want to own the asset outright at the end of your agreement or return the asset to the lender. There is also the possibility to exchange your asset for a newer version or model and renew your lease contract.

Some types of assets are more favourable to lenders depending on whether they are hard or soft assets. A hard asset is something tangible that can be physically touched and are usually the higher value assets in your company, such as machinery, vehicles or equipment. They are less likely to depreciate quickly in value and there would be a high likelihood that other businesses would be interesting in acquiring the assets should your business fail. Soft assets are more difficult (but not impossible) to finance as these are more difficult to sell on should anything happen to your business. They are usually lower in value than hard assets and are not always a physical item – examples include computers, software and furniture.  Lenders operate on the basis that if your business cannot continue, they would be able to sell the asset and not lose out themselves.

There is also the option to refinance against assets you already own – this releases working capital and can help stop the gap with any cash flow issues. This option is not offered by all lenders, but at Contact Business Finance we can help you find the right solution and put you in contact with the most suitable lender that will enable you to release equity for those assets you already own.

Asset finance…what does it cost?

The cost of asset finance is dependent on a variety of factors. These can include:

• The details of your business and how credit-worthy you are
• The size of the deposit you can offer
• The value of the asset(s) you are looking to purchase
• The type of asset
• The likelihood of the asset depreciating in value
• The mileage or hours on the clock of the asset if you are buying something that has been used previously

Because asset finance deals can vary widely, it is important to be in contact with a broker who can advise and help save your company time and money. Rates vary depending on circumstances but we typically see clients pay anything from 2-9% in interest.

Asset finance…what are the advantages?

There are many benefits to using asset finance that could help propel your business to grow and thrive. Here are our top reasons that asset finance could be a good idea for your company:

Up-to-date equipment – Asset finance is designed to help you trade efficiently and grow your business by having the ability to purchase brand new or old assets.

Cashflow injection – If you already own assets, you may have the ability to refinance and release cash.

More competitive than a business loan – A business loan might have been your first thought when considering buying assets, but generally asset finance is less costly.

Lenders can be flexible – Because of having the asset as security against the loan, a lender is often more willing to be flexible

Tailor your borrowing – with a variety of different asset finance options, you can choose whether or not you own the asset at the end of your borrowing period or if you will trade it in for a newer model.

Asset finance…what are the drawbacks?

With any form of borrowing, it is important to consider the disadvantages. You need to have the full scope of knowledge in order to make the best decision for you and your business. Here are some aspects to think about:

Location of the asset – If the asset you want to purchase comes from overseas, it may be more difficult to find a lender to fund it. Many lenders prefer to lend against assets that are in the UK.

Early Repayment Charge – If you wish to settle the loan before the end of your contractual agreement, you may be obligated to pay an early repayment charge. It is crucial that your broker fully explains the term and length of the asset finance agreement. We are always happy to answer any questions.

Supplier history – If the supplier of the asset is not reputable and has little trading history there can be an impact on the decision of the lender. The lender must feel confident in the asset you are purchasing to offer a deal.

I want asset finance…what do I do next?

If you feel that asset finance is the way to go for your business, reach out to us here at Contact Business Finance and we can talk through your requirements. We know that your business is incredibly important and we will do our best to help you find the most suitable option. Reach out to us today by calling 01902 219260 or email info@contactbusinessfinance.co.uk.