Asset financing will likely be made available at some point for your business to expand. So, what makes it a good strategy, and why is it a superior option when compared to conventional bank loans? This comprehensive guide will walk you through everything you need to know about utilising asset finance to expand or grow your small business.
Asset finance can help improve cash flow and provide control over your company’s
expenses. Read on to find out how.
What is Asset Financing?
Are you aware of your alternatives for commercial financing? Since there are various platforms and borrowing alternatives, many UK SMEs can become confused about their actual options. However, with options suited to all business types and industries, asset finance is one of the most open and adaptable types of financing.
Instead of purchasing equipment outright, for instance, you could sign a hire agreement with a leasing company. For a period of between one and five years, you will hire the necessary equipment and pay back a fixed monthly amount.
There are many different asset finance options available, and they can be adapted for use with a wide range of goods that might offer financing in exchange for the supply of physical assets. This can include buildings, machinery, equipment, automobiles, and other tangible assets.
So, let’s define what asset finance is not: it most certainly isn’t a last-ditch financing
alternative. Most companies that qualify for business loan financing nonetheless choose to apply for asset financing, since it offers far greater flexibility.
Asset Financing is an Adaptable Financing Method
Asset finance alternatives are accessible when a business needs funds to pay suppliers, investigate development opportunities, or fund procurements. Asset finance helps spread out purchases into a reasonable amount for SMEs who might struggle continually against escalating prices.
Asset finance enables lenders to make decisions more quickly, resulting in faster delivery of equipment, products and services. It also means payment terms can be negotiated and changed while the contract is still in effect, with the possibility of spreading payment terms across short, long, or extended intervals.
Asset financing works well for SMEs because it enables them to acquire the equipment they need to do business, trade, and expand without having to apply for other secured or unsecured credit lines. Additionally, payments are spread out over a set period of time, making budget planning simple.
What Makes Asset Financing the Best Financing Option?
Economic news reports can be challenging to understand, and may sometimes not take into consideration your individual business situation. The uncertainty surrounding the UK, rising interest rates, and concerns of a new recession may deter you from expanding or obtaining a cash injection for your company.
Despite the general state of the economy, many SMEs continue to rely on external funding. Most people will go to their bank first, but there are several reasons not to; the lengthy application procedure, strict lending guidelines, and exorbitant interest rates, to name just a few.
However, asset finance options can support almost all enterprises. Here are some scenarios that you may be familiar with and in which it would be wise to use commercial asset financing. For example, reducing operational costs (such as when you lease an asset or a rental) since you only pay for the asset’s value while it is in use. However, your new equipment doesn’t require an upfront payment, so you can start seeing returns right away.
Furthermore, you gain financial control too. Commercial asset financing enables you to keep tabs on your costs while maintaining control over your monthly spending.
Pre-existing Risk Management
Asset finance allows businesses in the IT sector to eliminate the risk of outdated technological
requirements. As a result, you are able to update and respond to your business environment more quickly.
Saving Taxes
Utilising commercial asset financing can reduce your tax obligation. All lease payments are considered costs for company tax purposes and are entirely deducted from your profits. Therefore, commercial asset finance can be helpful to you if you wish to release cash from your assets, buy or replace assets, or launch a new enterprise.
How Asset Finance Helps You Expand Your Business
One of the smartest ways to invest in your company while maintaining cash flow is through asset financing. Asset financing can help your company save money, allowing you to make additional investments and expand your business in other areas.
Startup Asset Financing
You should be able to purchase the machinery or equipment your startup or new company will need in order to function successfully. Asset financing assists by providing a buy or leasing facility, where the purchase price is divided into manageable monthly payments. Due to its financial security, many startups use this strategy.
Using Current Company Assets to Raise Money
Any fixed asset you hold, such as your computers, machinery, automobiles, machinery, and fixtures, may be purchased or financed via asset finance. The financial provider may use anything as collateral for the loan. However, the stock is not included in asset finance, but you can leverage the advantages of asset-based lending to buy more stock and fulfil more client orders, which will foster growth and improve cash flow.
Encouraging Short-term Growth
Asset finance, such as invoice financing or asset-based lending, can be agreed upon more quickly than typical loans; this is useful for when you need a speedy decision, or to take advantage of possibly-fleeting business opportunities. In only a few days, new facilities can be set up, and you can operate with strengthened cash flow right away.
Conclusions
Asset finance is a beneficial financial product at every stage of a company’s development. Compared to conventional bank loans, it is a more practical type of financing. It might be one of the fastest forms of lending alternatives available to you if your application is well-executed. It can also offer advantages like freeing up cash flow without the requirement for additional security.
