How does asset financing work?
Asset finance is a type of finance used by businesses to obtain the equipment, machinery and vehicles they need to grow without having to worry about upfront costs. You can read the asset finance definition by Investopedia here.
Asset finance is straightforward in how it works. Usually the lender will pay for the asset upfront and the business involved pays a regular charge for its use over an agreed period of time, so avoiding the full cost of buying outright.
Types of asset finance can also be used to release cash tied up in current assets and this is called refinancing. There are various types of solutions but the most common are lease financing and hire purchase.
Why use asset finance products
Paying cash upfront for brand new (or used) machinery or equipment can be expensive and cause cash flow problems. Asset financing is a way for a business to get funds to replace or buy existing equipment without overstretching its finances.
Asset finance options can be used to fund almost any asset and could be the perfect solution for your business and it is infinitely flexible, enabling you to:
- improve your cash flow efficiency
- exploit growth opportunites
- save cash resources and spread costs
- avoid depreciation.
Benefits of asset financing
Asset finance, or equipment finance, allows you to get and use essential equipment and other assets for your business without needing to make a lump-sum payment upfront. Finance like this is an adaptable alternative to obtaining a bank loan and makes it easier for businesses to manage cashflow and keep accounts in check.
Our agreements all come with a fixed interest rate which means you can plan budgets because you will always know how much you are spending over the period of the finance plan.
Flexible asset finance
Many capital projects demand deposits where equipment is paid for in stages. In fact some require a percentage payment with the order, a second percentage on building and the final percentage on shipping and some require the full payment even before the item has been delivered to the site. This can hit cashflow very badly.
What sets us apart is that we have worked with our bank of funders to find an alternative way to the normal deposit staged payment asset finance solution. We call it the flexible asset finance option. Put simply, it means that deposits can be funded so it’s actually better than the normal asset financing solutions.
We have developed a comparison finance calculator so you can see for yourself what a difference this type of asset finance could make.
Types of asset finance
With hire purchase commercial finance you have the option to buy your asset at the end of the agreement.
Commercial finance leasing means that you rent the asset. Ideal if you only need an asset for part of its working life.
Sale and leaseback commercial finance means that you sell your existing asset and lease it back, freeing up cash.
Funding the business this way means the funder agrees to buy your unpaid invoices which allows you to get advances on cash due.
UK asset finance
Where asset finance UK wins against customers’ main banking facility is speed and expediency. You might be used to banks dragging their heels to make initial approvals and then failing secondary approvals. To give a broker like us an opportunity, when the hope of financing the project is failing fast, only to have it approved within days can be quite a shock!
We hope we’ve answered the ‘what is asset finance’ question! If you have any questions about asset financing or our asset finance products you can read more or get in touch!
At Black and White we pride ourselves in obtaining clear and efficient business funding solutions: business finance leases, business loans and invoice finance. We are a friendly and independent business finance company and we work hard to understand your business and build a long-term relationship with you.
We like a challenge and are accomplished at getting business finance in place for more difficult to explain assets. We fill the gap if the bank drags their heels, doesn’t understand the project or simply says no.
They deliver a personal service. In fact, asset financing done the way it used to be, and 24/7. They are there when I need them.
We like dealing with Tim, he is now one of the team. I would recommend him to anyone needing honest advice with no bullshit.