ASSET FINANCE: EVERYTHING YOU NEED TO KNOW
Updated: Nov 24
Welcome to our comprehensive guide on Asset Finance, brought to you by Approved Finance Group. In this article, we will provide you with everything you need to know about asset finance, including its benefits, different types, and how it can be utilised for business growth and financial management. Whether you're a business owner looking to acquire essential assets or an individual seeking flexible financing options, we've got you covered!
TABLE OF CONTENTS
WHAT IS ASSET FINANCE?
Asset Finance is a financial alternative that businesses can employ to expand their operations by obtaining essential equipment, including vehicle fleets, heavy machinery and plant equipment. Instead of purchasing the assets outright and incurring the complete cost, you make regular payments to utilise the asset for a predetermined duration. To better understand your options, consider speaking to an asset finance broker.
WHAT ARE THE ADVANTAGES OF ASSET FINANCE?
Cash flow management: Acquire assets without upfront payment, preserving working capital and maintaining cash flow.
Access to high-quality assets: Obtain state-of-the-art equipment, machinery, or technology that may otherwise be unaffordable, improving productivity and competitiveness.
Flexibility and scalability: Tailor repayment structure and lease terms to meet specific business needs, allowing for easy upgrades or replacements as requirements change or expand.
Tax benefits: In many jurisdictions, asset finance arrangements provide tax advantages, with lease payments treated as operating expenses that can be deducted from taxable income, reducing overall tax liability.
Risk management: Mitigate risks associated with asset ownership, as lessors often handle maintenance, repairs, and obsolescence, particularly beneficial for rapidly evolving industries.
Preservation of credit lines: Utilise asset finance to preserve existing credit lines for other business needs, such as expansion or unforeseen expenses.
Access to specialised knowledge: Asset finance providers offer expertise in specific industries or assets, providing valuable insights and assistance in selecting the right equipment or technology.
Note: The benefits of asset finance can vary based on circumstances, industry, and asset type. Consultation with financial professionals is recommended to assess suitability and advantages in individual situations.
WHAT IS SHORT-TERM ASSET FINANCE AND HOW DOES IT WORK?
Short-term asset finance refers to a financing solution that allows businesses to acquire or lease assets for a short duration, typically ranging from a few months to a couple of years. It is designed to meet temporary or immediate asset needs, providing businesses with flexibility and agility in managing their operations.
WHAT IS THE DIFFERENCE BETWEEN ASSET FINANCE AND ASSET REFINANCE?
Asset finance and asset refinance are two financial concepts that involve using assets for financing. Here's a simplified breakdown, which highlights the differences between the two:
Asset Finance:
Acquiring or leasing assets using external funding.
Allows businesses or individuals to access assets without upfront payment.
Financing is provided by banks, institutions, or asset finance companies.
Repayment through regular instalments over a set period.
Helps preserve working capital and offers cash flow management, flexibility, tax benefits, and risk mitigation.
Asset Refinance:
Using owned assets as collateral to secure a loan.
Assets are already owned outright.
Appraised assets can be used to borrow funds.
Borrowed amount can be used for various purposes.
Repayment terms and conditions depend on asset value, marketability, and creditworthiness.
In summary, asset finance involves obtaining assets through external financing, while asset refinance involves using owned assets as collateral to secure a loan. Both approaches provide access to funds, but their mechanisms and purposes differ.
CAN YOU GET ASSET FINANCE WITH BAD CREDIT?
Getting asset finance with bad credit can be challenging as lenders assess credit history for loan applications. Bad credit implies a higher risk for lenders due to late payments, defaults, or financial difficulties.
Although difficult, it's not impossible to obtain asset finance with bad credit. If using high-value assets as collateral, lenders consider the asset's value rather than personal credit. However, lenders may still review business accounts to ensure payment capability.
For hire purchase or leasing of vehicles or equipment, personal credit may affect decisions for sole traders or partnerships. Limited companies prioritise the business's credit rating, but lenders still need assurance of regular payments. Personal credit may matter if providing a personal guarantee, even for limited companies.
CAN YOU GET ASSET FINANCE AS A SMALL OR START-UP BUSINESS?
In short... YES! Asset finance provides a valuable opportunity for small businesses and startups to secure the necessary vehicles and equipment while minimising the upfront cash outlay. By using the equipment itself as collateral, asset finance offers a practical solution.
Instead of tying up valuable funds in a long-term purchase, businesses can allocate those resources to other areas of growth and development. Whether you're a sole trader, partnership, or limited company, asset finance options such as hire purchase, asset refinance, and leasing are accessible, regardless of your business's duration of operation.
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HOW DOES IT WORK?
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