As the name suggests, asset finance companies offer loans secured by assets – typically equipment, machinery or vehicles – rather than personal or commercial guarantees. It’s a type of funding that’s used by businesses of all sizes, and it’s particularly useful for start-ups that don’t have a strong enough financial history to secure traditional lending or would prefer not to put their home on the line.
Asset financing companies can provide funding for a variety of fixed assets including computers, plant, machinery, vehicles, furniture and technology. They are often able to offer a hire purchase or leasing arrangement which means that the purchase payments are broken down into more affordable monthly payments. It’s also possible to borrow against a company’s existing assets by refinancing them.
In many cases, an asset finance provider can give you a much faster decision than a bank. It’s also easier to get a lease or hire purchase agreement for an asset that you already own, and it can be simpler to arrange than a bank loan because there’s no need to show a strong trading history.
The main advantage is that your business gets a significant increase in cash flow. The payments for the asset are spread over several months, which can be helpful in managing your working capital and opening up more opportunities for growth. Depending on the terms of your asset finance agreement, you might be able to upgrade the asset to a newer model during the rental period, which could allow for further efficiency savings.
When considering an asset finance company, make sure you fully understand the fees and charges involved. This includes any interest and repayment charges, as well as the end-of-lease or termination options. The company should also clearly explain any additional charges such as mileage or wear and tear. It’s also a good idea to find out whether the company is regulated by the FCA, as this will help you to avoid a provider that’s not legitimate.
Choosing the right asset finance provider for your business will depend on what kind of assets you need and how quickly you need them. Some providers specialise in specific types of equipment, which can be ideal if you’re looking for something very specialised and might not be able to afford to buy it upfront.
It’s important to remember that the value of any asset finance facility can go down as well as up, and you should review your payment schedule regularly. You should also ensure that you have a thorough understanding of all the small print, as financial products love to wrap themselves in cosy layers of financial jargon. It’s worth getting a second opinion on any financial product before you sign it, as mistakes can be costly in the long run.