Asset Finance

What is asset finance?Asset finance is a type of financing that allows businesses to purchase equipment, machinery, or vehicles and then pay for them over time.

This type of financing can be especially helpful for businesses that need to purchase expensive items but do not have the cash on hand to pay for them all at once. Asset finance can also provide businesses with the flexibility to upgrade their equipment as needed, without having to wait until they have saved up enough money to pay for the new equipment outright.

In addition, asset finance can be used to finance the purchase of both new and used equipment, making it a versatile tool for businesses of all sizes.

Whether you are looking to finance a new piece of equipment or simply upgrade your existing fleet, asset finance can provide the funds you need

What is asset finance?

For businesses, asset finance can be a useful way to acquire the equipment and machinery they need without putting strain on cash flow. By leveraging the value of assets such as vehicles, buildings, and equipment, businesses can get the capital they need to make a purchase without having to take out a bank loan or dip into savings.

The key benefit of asset finance is that it allows businesses to keep their cash on hand to invest in other areas of their business or take advantage of opportunities as they arise. In addition, asset finance can be structured in a way that best suits the needs of the business, with various repayment options available to spread the cost over time. As a result, asset finance can be a flexible and effective way for businesses to grow and invest in new assets.

What is an asset?

An asset is anything that increase the value of a company or individual. For example, a piece of equipment that is used in the production process can be considered an asset. The same goes for any property, such as land or buildings, that a business owns. intangible assets, such as patents and copyrights, can also be extremely valuable.

An important thing to remember is that an asset can only be used to generate revenue; it cannot be used for personal consumption. This is why many people consider stocks and bonds to be assets, even though they cannot be physically touched or used in any way. Ultimately, anything that has the potential to create value can be considered an asset.

What types of asset finance are there?

There are five main types of asset finance:

  • Hire purchase:

HP, or hire purchase, is a type of credit agreement that allows you to spread the cost of an item over a period of time, usually 12 months or more. You make an initial payment (usually 10-20% of the total cost), followed by equal monthly repayments. At the end of the agreed period, you own the item outright. HP can be useful if you need to buy an expensive item but don’t have the cash to pay for it all at once.

However, it’s important to remember that you’ll typically pay more for the item in the long run due to interest and other charges. HP agreements are also known as conditional sale agreements

  • Finance lease, (sometimes called a capital lease):

A finance lease is a type of leasing agreement where the lessee (the party leasing the asset) agrees to make all or some of the payments required to own the asset by the end of the lease term. The lessor (the party owning the asset) remains the legal owner of the asset during the lease term, but the lessee has the option to purchase the asset at the end of the lease term for a pre-determined price.

Finance leases are typically used for expensive assets such as vehicles, aircraft, and real estate. One advantage of a finance lease is that it allows the lessee to use an asset without having to make a large upfront payment. Another advantage is that the lessor assumes the risk of obsolescence, meaning that if the asset becomes obsolete before the end of the lease term, it is up to the lessor to find a new lessee.

However, one disadvantage of a finance lease is that it can be difficult to get out of if the lessee decides they no longer need or want to use the asset. Overall, a finance lease can be a helpful way to acquire an expensive asset without having to make a large upfront payment, but it is important to understand all of the terms and conditions before signing an agreement.

  • Equipment leasing:

For businesses, equipment leasing offers many advantages over purchasing outright. With leasing, businesses can obtain the latest equipment without tying up large amounts of capital. In addition, leases typically include servicing and maintenance, which can help to keep costs down.

Leasing also offers flexibility, as businesses can return the equipment at the end of the lease period or upgrade to newer models. As a result, equipment leasing can be a cost-effective way for businesses to obtain the latest technology.

Equipment leasing offers a number of potential benefits for business owners, including the ability to acquire needed equipment without tying up large amounts of capital, the potential for lower monthly payments, and possible tax advantages. In addition, equipment leases often include maintenance and repair provisions, which can help reduce operating expenses. For these reasons, equipment leasing can be an attractive option for businesses of all sizes.

  • Operating leasing:

An operating lease is a contract that allows a tenant to use equipment, real estate or other property owned by the landlord. The lease typically includes provisions for maintenance, insurance and repairs, and the tenant is usually responsible for paying taxes and utilities associated with the property.

Operating leases are often used for office space, vehicles and other expensive equipment. The term of the lease is typically shorter than the useful life of the asset, which gives the tenant flexibility to upgrade to newer models or move to a different location when their needs change. For the landlord, operating leases can provide a steady stream of income and help to offset the cost of owning and maintaining properties.

  • Asset refinance:

Asset refinance is a way for business owners to use their existing assets – such as equipment, property, or inventory – as collateral to secure financing. This can be an attractive option for business owners who need cash quickly but don’t want to take on more debt.

There are a few things to keep in mind before you decide to refinance your assets, but if you do it right, asset refinance can be a great way to get the cash you need without adding more debt to your balance sheet.

  • Contract hire, (or vehicle asset finance):

Contract hire is a type of vehicle leasing agreement in which the lessee (the person who leases the vehicle) agrees to pay a monthly rental fee for a set period of time. The length of the contract hire agreement can vary, but is typically between two and four years. At the end of the contract, the lessee is usually given the option to purchase the vehicle outright or return it to the dealership. Contract hire can be a convenient and cost-effective way to drive a new car without having to worry about maintenance or repairs.

It can also offer flexibility, as the lessee is not committed to owning the vehicle long-term. However, it is important to remember that contract hire agreements are typically non-transferable, so if you decide to cancel your agreement early, you may be charged a hefty termination fee.

How does asset finance work in the UK?

Asset finance is a type of lending that enables businesses to purchase equipment, machinery or vehicles without having to pay the full purchase price upfront. instead, businesses can spread the cost of the asset over an agreed period of time, and make regular repayments. Asset finance is available from a variety of lenders, including banks, leasing companies and specialist providers. In the UK, asset finance is commonly used to fund the purchase of plant and machinery, vehicles and office equipment.

One of the main benefits of asset finance is that it can help businesses to preserve cash flow. Rather than tying up large sums of money in an asset, businesses can use asset finance to spread the cost over a number of years. This can free up funds for other purposes, such as working capital or investment in other areas of the business.

As well as being flexible and affordable, asset finance can also be tailored to suit the specific needs of your business. Whether you require short-term or long-term financing, there are a range of options available to meet your requirements.Asset finance can be an attractive option for businesses of all sizes. Whether you’re looking to acquire new equipment or refresh your existing fleet, asset finance could provide the solution you need.

What are the advantages of asset finance?

When it comes to financing business assets, there are a number of options available to companies. One option is asset finance. Asset finance can provide a number of benefits to businesses, including the ability to preserve working capital, access to tax incentives, and flexible repayment terms.

  • Asset finance can help businesses to preserve working capital. This is because businesses can use asset finance to pay for assets over time, rather than paying for them upfront in one lump sum. This can free up cash that can be used for other purposes, such as investing in other areas of the business or meeting day-to-day operating expenses.
  • Asset finance can also give businesses access to tax incentives. In many cases, the interest paid on asset finance agreements is tax deductible. This can help businesses to reduce their overall tax liability.
  • Asset finance can offer businesses flexible repayment terms. This means that businesses can spread the cost of an asset over a period of time that suits their needs and budget. This can make it easier for businesses to manage their cash flow and make timely repayments

What are the disadvantages?

While asset finance can be a helpful way for businesses to obtain the equipment they need, there are some potential disadvantages to consider.

  • Asset finance generally has a higher interest rate than other types of financing. This means that over time, businesses will end up paying more for their equipment than if they had used another financing option.
  • Asset finance typically requires a down payment, which can be a significant expense for businesses that are already cash-strapped.
  • Asset finance may require businesses to give up ownership of the asset at the end of the loan term. For all of these reasons, it’s important to carefully consider all of your options before deciding on asset finance.

Can my assets be repossessed?

When you take out an asset finance agreement, the lender owns the asset during the contract. This means that if you default on payments or breach the terms of the agreement, they can repossess the asset. The main benefit of this for lenders is that it reduces their risk exposure; if you fail to make repayments, they can simply take back the asset and sell it to recoup their losses.

For borrowers, however, it means that they need to be extra careful to keep up with repayments and follow the terms of the agreement. If they default, they could lose access to an essential piece of equipment or machinery, which could severely impact their business. As such, it is important to weigh up the risks and benefits of an asset finance agreement before signing on the dotted line.

Can I get asset finance with bad credit?

Many people worry that they will not be able to get asset finance if they have bad credit. However, there are a number of options available for those with less-than-perfect credit. There are a number of specialist lenders who offer asset finance to people with bad credit, and the terms and conditions of these loans are often more flexible than those offered by mainstream lenders.

In addition, many businesses are willing to provide asset finance to people with bad credit, as they know that this type of financing can be beneficial for both parties. As such, it is often possible to get asset finance even if you have bad credit. However, it is important to shop around and compare different offers before making a decision.

Is asset finance regulated in the UK?

Asset finance is not regulated by the Financial Conduct Authority (FCA) but is subject to The Standards of  Lending Practice. The FCA sets out specific rules and regulations that asset finance companies must follow in order to operate in the UK. These rules and regulations are designed to protect consumers and ensure that they are treated fairly.

For example, the FCA requires asset finance companies to provide customers with clear information about the terms of their loan agreement. They also place restrictions on how much interest can be charged and what fees can be levied. As a result of these regulations, UK consumers can be confident that they are getting a fair deal when they take out an asset finance loan.

Guide to asset finance

Is my business eligible?

Your business maybe eligible for asset finance, to find our regardless of the businesses current standing simply complete an online enquiry or make contact with one of the team who will be happy to help.

Lee Jones Profile
Business Finance Expert at Business Insolvency Helpline

Lee Jones is a seasoned expert in the field of business finance with over two decades of experience. With a keen understanding of financial markets and a passion for helping businesses thrive, Lee has become a trusted advisor to countless companies across the United Kingdom.