Guide to asset finance options for small businesses in the UK. Manage company finances effectively. Improve cashflow & growth.

What are the Advantages of Using an Asset Finance Company?

Asset Finance is a kind of credit arrangement, often used by businesses to gain access to vital equipment, machinery, and vehicles that they need to develop and grow their enterprises.   The main advantage of this kind of funding is the fact that you can pay for assets with regular monthly payments rather than having to stump up the cash upfront to purchase them outright.  This is particularly appealing for start-ups and small businesses who may not have the track record to access other kinds of funding or who don’t want to disrupt their cashflow with large capital purchases.

Why Would I Need an Asset Finance Broker – Can’t I Just Do This Myself?

Refinancing is a particular form of asset finance that can help businesses get a cash injection, with   lending secured against what they already own.   Repayments are made on a monthly basis, so it is a way of raising funds against secured collateral without affecting the day to day running of the operation. 

There are a range of different asset finance options available to business owners – from straight forward leasing to more complex ‘lease back’ schemes for assets you already own.  Negotiating contracts with lenders is a particularly, specialist area – and a broker can help you to secure the best deals that offer the best value for money.

 Of course, you can negotiate the deals on your own behalf, but it can be notoriously difficult to find your way around all the different costings, valuations and buy-back/pay-back permutations.  Remember our brokers are experts and know the lending options that will work best for you.   

What Types of Business Asset Finance are There?

There are different types of asset finance available to businesses some of which are quite straightforward. Others are far more complicated and will require specialist advice.

Hire Purchase

Hire purchase agreements allow businesses to pay for essential equipment such as vehicles, machinery, and computers without requiring any kind of up front down-payment.  The business will pay for the asset in monthly instalments (interest is applied and added to the overall amount owed) with an option to purchase at the end of the HP period.

This kind of agreement is particularly useful when cashflow and budgets are tight. 

 There are also tax benefits to this kind of lending. As ‘owners’ of the assets the business can offset any interest and arrangement fees for tax purposes.  You can also claim capital allowance on the asset even though you do not own it outright until the end of the agreement.

Finance Leases

Finance leasing can have great benefits for any SME.  This kind of financing allows you to use the asset while paying back its full cost (plus interest) in monthly instalments. 

At the end of the lease you have a few options:

• If you have the cash, you can choose to pay the ‘balloon payment’ and then you will own the asset outright
• You can sell the asset and keep a proportion of its residual value. The remainder is used to make the final payment
• You can continue to use the asset and enter a secondary rental period with the lender
• You can return the asset to the owner and that ends the agreement.

Finance Leases are a useful way of getting hold of the latest equipment without having to incur any upfront costs. Similar to hire purchase agreements, there are tax benefits for this kind of lending.   Lease holders able to claim capital allowances against the asset.

Operating Leases

An operating lease is a long term rental agreement where you rent the item for part of its useful life.  This kind of lease can be extremely cost effective because the amount you are charged is based on the difference between its actual cost (as new) and its residual value (what the lender expects it to be worth at the end of the lease). 

As there is no actual ‘ownership’ involved, the leaseholder has an option at the end of the agreement to return the item with no further costs, or to upgrade their equipment by returning the item and entering into a new lease agreement. 

As a result, the costs for this kind of lease are lower than both a finance lease and an HP agreement.  Costs can still, however, be offset as a rental against your VAT obligations. 

Refinancing and Capital Release

Companies can also consider refinancing or capital release.  If your business owns assets such as machinery, equipment, or vehicles then you can use this to facilitate a cash injection for your business. 

Basically, the finance company operates a ‘sale and HP back’ model where they purchase the asset from you and then sell it back to you using a hire purchase model. This kind of financing is particularly complex, especially with specialist equipment which may be difficult to value.

Asset Finance Providers and Repayments

One of the main benefits of using Asset Financing options are that there are rarely any upfront fees for your lending. Repayments are fixed and monthly so you can keep a track of your spending without worrying about not having use of the asset.   

In some cases, the terms of the loan can be arranged to suit the needs of your business and your cashflow predictions, with payments reduced for certain months and increased in others to take account of seasonality.  If this kind of arrangement is more suitable for your business, then some asset finance lenders are more flexible that others.