Asset finance: what you need to know

There are lots of different finance options on the market. There is even more conflicting advice about finding the best option and provider – often from biased sources.

We want to help you cut through the noise and give you the facts about asset finance and asset-based lending.

What is asset finance?

It’s all about getting the assets you need and putting them to use in your business – assets like machinery, vehicles or property. If it’s an asset, there’s a good chance it can be financed.

You’re not buying the assets outright. Instead, you have a hire agreement with the funder – and agree a monthly repayment sum for a period that normally ranges from 1 to 7 years. At the end of that period, you will have paid off the loan and only then will you own the asset.

As you may have guessed, this has upsides and downsides.

Benefits of asset finance

Accessible

It’s a great option for businesses that might find it hard to arrange unsecured finance, such as a traditional bank loan. The secure nature of asset finance means you’re more likely to be accepted.

By contrast, qualifying for unsecured funding can be tricky if you’re a new business with a short trading record, have a poor credit score, or simply lack any solid financial forecasting.

Flexible

Asset finance lets you go for assets which may otherwise be way beyond your budget. By spreading the cost as part of a hire agreement you can afford to think big.

Less risk

The lender carries the risk. That means you don’t need to worry about mending or replacing any broken machinery. And even more importantly, you’re not using your personal assets as collateral. So you are not personally liable to pay back the amount lent in case of a default.

Speed

Asset-based lending is often quick compared to other common finance options. As your assets act as security, there are fewer checks and balances, and a lending decision can be made quickly.

Tax-efficient

Because your repayments are lease expenses, they can be fully deducted from your profits – something you won’t get on most other funding options.

Potential downsides of asset finance

Capital allowances

While asset finance can be considered tax-efficient, you can’t claim capital allowances on leased assets if the lease period is under five years.

Can be costly

In the long run, especially on longer terms, you could find that asset finance ends up being more expensive than buying the asset outright. It’s worth running the numbers if you think you might have the cash to purchase the asset upfront.

As always when looking for a funding solution, make sure you compare different rates and read all the fine print.

How we help

Finpoint is free to use. We’re 100% transparent about fees and rates, and give you access to the UK’s largest panel of business lenders. We’re also 100% independent. Our only interest is in making sure you get the right funding option for your business need.

Want to know more? Speak to us about funding.

Marcus Gruenwald

Marcus Gruenwald

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