What Is Asset Finance?
Asset finance is a flexible financial solution for businesses – this means that they can acquire or unlock value from assets without any upfront costs.
How Does Asset Finance Work?
Providing a solution for accessing new equipment or vehicles through hire agreements, with the option to purchase the asset after the contract is over. This financial solution also enables businesses to unlock the cash that may be tied up in existing assets. By leveraging collateral, such as property or land, businesses can access that which is tied up.
There are common types of business asset finance such as:
- Equipment leasing
- Finance leasing
- Hire purchase agreements
Asset finance is a cost-effective way to acquire new equipment or machinery that is necessary for business. Instead of making a large upfront payment, asset finance allows businesses to spread the cost over a specified period. The asset lender purchases the asset, and then your business pays a monthly fee during the agreed term, making it affordable and freeing up cash flow.
This short-term financial option means that businesses can acquire necessary assets without compromising on cash flow.
Are There Different Types Of Asset Finance?
The widely preferred form of asset finance. This version allows businesses to spread the cost of equipment purchase over an extended time.
Businesses can acquire equipment immediately and repay the borrowed amount in monthly installments, once the loan is fully repaid, you become the owner of the asset.
Asset Refinancing
This is a valuable option when businesses are looking to unlock capital that is tied up in invaluable assets such as property or land.
Often known as capital release, asset refinance allows you to borrow funds based on the value of the asset, which serves as collateral for the loan. If repayments are not made, the lender can claim that asset to recover the outstanding amount.
Equipment Leases
Equipment leasing allows you to use the equipment immediately while spreading the cost over an agreed period. The difference between Equipment leasing and Hire Purchase leasing is that you will not necessarily own the equipment at the end of the term. Alternatively, the equipment lease agreement may be extended, the equipment could be purchased outright (after factoring in what has already been spent), upgraded on a new lease, or simply returned.
Operating Leases
This is a type of contract hire that offers short-term rental agreements without ownership of the equipment. In an operating lease, the lender is responsible for maintaining the equipment, and at the end of each term, the equipment is returned and made available for other businesses.
Finance Leases
A finance lease agreement is where the asset finance company buys the asset for the lessee while remaining the legal owner of the asset for the complete duration of the finance lease agreement.
Generally, the risk of ownership of the asset has been transferred to the lessee and it will appear as such so that on the balance sheet the outstanding rental will be highlighted as a liability.
At the end of the term of a finance lease agreement, the asset can either be written down to zero or set to estimated market value. Depending on the business’s requirements, occasionally at the end of the term, a secondary smaller lease agreement is offered by the finance company that funded the original lease agreement. A capital lease benefit is the depreciation allowing to expense assets initially quicker, instead of over the entirety of the lease agreement.
Advantages & Disadvantages Of Asset Finance
Here at Winchestercf, we have detailed information on all financial options that will support your final decision.
The Advantages of Asset Finance
- Preserve Capital: Access assets without large upfront purchases, keeping cash flow intact.
- Immediate Asset Use: Use the asset while spreading costs through structured repayments.
- Promote Growth: Free up funds or invest in new assets to drive business expansion.
The Disadvantages of Asset Finance
- Risk: If repayments are not made, or payments do not adhere to the agreement terms, the lender will repossess the asset.
- Costs: There are additional costs associated with asset finance, including interest and fees.
- Limited flexibility: As this is tied to a specific asset, this limits your ability to switch to a different asset or use the funds for other purposes
How To Get Asset Finance
If you qualify for asset financing, you can speak to our professional team at Winchestercf who will give you expert advice and provide you with support throughout the process.
How Much Is Asset Finance?
This is dependent on your financial situation, business, and choice of asset financing. You can speak to our professional team at Wincestercf to talk about options now.
Are There Additional Fees?
Yes. Generally speaking, asset finance agreements often also include additional fees such as arrangement fees, early repayment penalties, etc.
It is best to speak to a professional when it comes to additional fees. You can speak to our professional team at Winchestercf to find out more.
The Conclusion - Everything You Need To Know About Asset Finance
Now that you understand what Asset Finance is, the different asset financing options, and additional fees, you can begin your query with Winchestercf – we are here to support you.
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