10 Benefits of Asset Finance

Where to turn when you need money to expand your business is a question that businesses of all sizes face every day. One option that can help your small business grow is asset finance, which gives you access to funds in exchange for assets such as machinery or vehicles. Asset finance has many benefits over other financing options, such as loans or credit cards, and if you take the time to explore them all, you’ll be better prepared to make the right decision when it comes time to choose the best way to finance your next acquisition.

What is Asset Finance?

Usually, asset finance means a lease or hire purchase, where a business hires equipment instead of buying it outright. Assets can be tangible goods like factory machinery or computers or intangible assets such as patents and brands. Asset finance is also often referred to as capital equipment financing, leasing, or hire purchase – but whatever you call it, it gives businesses flexibility and range when looking for funding. While some companies choose to borrow money from banks to fund their expansion plans, others prefer asset finance. There are several advantages to hiring assets rather than buying them.

Benefits of Asset Finance

Here are ten potential benefits of asset finance that can help you make an informed decision.

1) Greater Flexibility

When you finance equipment with asset finance, you get greater flexibility. Your payments won’t be due on a certain date, but rather when your company can afford to make them. This could mean paying off your debt faster or taking advantage of unexpected opportunities if cash is tight for one month. Either way, you have more control over your budget and can make choices that give you better returns for your business.

2) No Personal Liability

As an asset finance company, your assets are what’s being financed. With no personal liability or debt on your part, asset finance is a great way to get funds for any business. You aren’t borrowing money from a bank and then paying it back with interest; instead, you own whatever assets you purchase. The financing comes from that asset itself; in make yous, you pay for things using your cash flow. Once you do, there is no more payment to make you own those assets outright. Plus, as long as that asset remains valuable and functional, as it should if you chose well when you were purchasing it in the first place...you can continue to use those same assets over and over again without paying another cent toward them.

3) Lower Risk

When a customer purchases assets through asset finance, it enables them to lower their risk because they are only paying for what they use. As long as payments are being made on time and properly, there is no risk that those assets will be repossessed. Customers who do not have enough capital to purchase a large amount upfront can instead pay for their order in installments over time. This allows them to spread out their costs and manage cash flow more easily. It also gives customers greater visibility into future expenses. They will know upfront what they can expect to pay each month, which can make budgeting easier than having unexpected expenses show up at random times throughout the year.

4) Available for Longer

Lenders who offer asset finance loans often offer loans that run for five to seven years. Traditional banks might require an exit strategy within a year or two, but lenders who specialize in asset finance tend to give you more time to pay off your loan-which can be helpful if the business is slower than expected. Longer terms also mean lower monthly payments, and smaller monthly payments can increase your cash flow and help your company get back on its feet faster when unexpected issues arise. A shorter repayment period often means larger monthly payments that put a strain on cash flow and can make it difficult to cover basic operating expenses. Larger loan amounts: If you want to fund big-ticket items such as machinery or equipment, an asset finance lender might be your best bet.

5) Faster Growth

Financing a company through asset-based lending allows entrepreneurs to grow their business faster than they would have been able to if they had gone through a bank. This is because asset-based lenders are prepared to lend against tangible assets (like equipment, inventory, or real estate) that have proven track records and high values. If your cash flow is limited, but you’ve got valuable assets, then maybe it’s time to consider an asset-based lender. 

6) Higher Value

When you finance equipment through asset-based lending, you get access to better assets and lower financing rates than typical banks. With an interest rate that starts at 1% and can go as low as 0%, a lender is typically able to save you 40% off retail purchase prices. Because it’s easier to get approved for an asset-based loan, you don’t have to worry about meeting stringent qualifications or paying high down payments. You can also take your time shopping for equipment, so there’s no need to rush into making a quick decision just because a dealer requires a 50% down payment. Buying better assets at attractive terms is one of many benefits of asset finance!

7) Excellent Reputation

For companies operating in a competitive market, finding ways to reduce costs is important and asset finance can help. With asset finance, you have access to both existing and new assets without having to pay for them immediately. To keep your equipment running smoothly at all times, you only need to worry about minimal maintenance costs rather than an upfront payment. This allows you to more effectively compete with other businesses in your industry who might be able to afford new equipment simply by waiting a few months longer than necessary. This can give your business an excellent reputation among customers and suppliers alike. (In fact, having a strong reputation is one of our 10 Benefits of Asset Finance.)

8) Professional Support from Accountants, Lawyers, and Bankers

When choosing asset finance, you’ll benefit from extra support and input from accountants, lawyers, and bankers who can help ensure you get the most out of your asset finance. Their knowledge in their respective areas is indispensable. You could choose to manage these relationships yourself but, in reality, it’s easy to make mistakes or simply lose interest along the way as new projects come up. Having a team on hand means all you have to do is focus on running your business, while they take care of everything else.

9) No Capital Gains Tax on Sale

When using asset finance, you can sell your purchased asset and not have to pay capital gains tax. This is due to how business assets are treated differently from personal assets when it comes to taxes. When a business owner sells an asset, no capital gains tax applies. This is because businesses can depreciate purchased assets over their useful life instead of having to claim them as income to write off capital gains. Another advantage that results from depreciating assets instead of selling them after using them for some time is that you will be able to claim part or all of the depreciation as a deduction against your regular taxable income.

10) Easier Accounting

Easier Financing: As mentioned above regarding cash flow, assets tend to have shorter payback periods than most purchases – meaning faster returns on investment than cash outlays.

With asset finance, you don’t have to worry about filling out monthly credit card statements and reconciling them with your bank statement. Because an asset has been purchased and put on your books, it shows up there for accounting purposes. It’s not a line item or purchase order that can go missing without explanation; it is accounted for in a way similar to items such as rent, office supplies, etc. This means less work at tax time since you won’t need to make sure everything is properly entered into accounting software like QuickBooks (or another equivalent). Your accountant will thank you!. 

Conclusion 

Entrepreneurs can benefit from asset finance in many ways, but it’s important to understand that there are risks involved with these loans. You should not take on more debt than you can handle or finance an asset for a longer period than you can afford. However, if you know how to manage your finances and can track your cash flow well, you may find asset finance is right for your business.

What do I need to do before applying?

To get started with applying for asset finance, you will need to establish a business and an account. To create a business account, you will need to provide some basic information. For an online application, there is also a security deposit required which will be returned when your account has been set up.

How much should I expect to pay for financing? 

This is where an asset finance company comes in handy. They’ll charge a fee that’s based on a percentage of what you spend, but they’ll do their best to get you financing at rates that are lower than those offered by banks. To sweeten things even more, asset finance companies usually offer longer payback periods than banks do, which means you could be driving your shiny new car for years without having to worry about making your payments each month.

Financing new equipment for your business can seem like a daunting task. 

Will my small business get approved?

One thing that many business owners don’t think about, but should, is whether or not their business is creditworthy enough to be approved for financing. After all, no one wants to be denied financing for a needed piece of equipment because their bank doesn’t think they have a good enough chance of paying it back.

what can I use asset finance for? 

Anything you want to buy. It’s common in industries like agriculture and construction, where expensive machinery is used to do a job. For example, if you were building a house and wanted all-new tools, rather than buying them one by one as they were needed, you could purchase them with asset finance over a short period (1 year), to spread out payments throughout construction.

Why is asset finance better than invoice factoring?

Invoice factoring is popular among small businesses, but it has its drawbacks. That’s why asset finance is becoming an increasingly attractive alternative. In some cases, it can even be a better option than invoice factoring.