How Asset Finance Works

Posted by Emma Robison on Nov 28, 2018 6:33:00 PM
Emma Robison
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How Asset Finance Works

Looking to buy a business asset? Raising finance for such a purchase is known as Asset Finance, and is an established method with some new twists, thanks to the alternative finance markets. Generally speaking it is a no-fuss procedure and surprisingly fast to arrange.

There several approaches to asset finance such as:

  • Hire Purchase - The service provider purchases the equipment outright and owns it. You then hire it from them for an agreed monthly payment. Ownership transfers to you at the end of the period. It suits companies that wish to purchase the asset outright.
  • Leasing - The service provider purchases the equipment outright and owns it. You pay a monthly fee to lease it. The asset does not transfer to you at the end of the period but remains with the lessor (aka the funder), although most packages now offer options in this regard. It mostly suits companies who do not wish to purchase the asset outright but merely to use it for a period.
  • Asset Refinance – A business has an asset with equity (value) even if there is some residual finance left to be paid. The asset is valued and refinanced providing a lump sum to the business with the capital being repaid either through a HP or Lease agreement.

Benefits Of Asset Finance

These types of asset finance are attractive propositions for most businesses because they avoid the need to find the cash to meet the full purchase price upfront by spreading payments over a period of time. They enable a company to control an asset for an agreed period while paying rent or instalments that pay for interest to cover the capital cost and also its depreciation.

  • Lower personal risk than a bank loan due to security required
  • The lessor maintains the equipment
  • The lease agreement cannot be foreclosed if you meet the repayment schedule and conditions
  • Enables access to high capital, high end equipment in an affordable manner

Flexible Asset Finance

Asset Finance is not restricted to acquiring equipment or vehicles. Essentially, it involves raising finance against an asset. Therefore you could fund many different activities including clearing company debts or any other requirement by raising finance against an asset that your business already owns.

How Do I Know If I Qualify For Asset Finance?

As the asset in question represents the collateral for the finance, there may be less focus on the credit history of the company and its directors. Having said that, any finance provider will want to see an established trading history as well as the ability to meet repayments from cash flow.

Leasing Or Hire Purchase (HP)?

Once you have decided on asset purchase a decision can be made about whether to pursue a lease or hire purchase agreement. Consider these factors:

  • Maintenance costs may be included in a Leasing agreement, which can represent a major attraction. That said, every leasing and HP agreement can be negotiated as regards the T&Cs attached to it.
  • VAT – on HP agreements, the full VAT value of the transaction may be paid in full upfront with the first payment or sometimes deferred for up to 3 months and is reclaimed in the normal way with the next VAT return. Therefore monthly payments are excluding VAT.
  • Asset ageing – leasing scores highly where a company wants to frequently take advantage of the latest technology by leasing a new replacement item every in shorter periods perhaps 24 or 36 months.

Make The Right Finance Decision

There are many options available for both HP and Leasing. Talk to us today and take advantage of a confidential professional consultation to discuss your requirements.

Download the FREE Asset Finance Guide Today.

Topics: Asset Finance

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