Asset finance is a funding solution put in place by the Government to help businesses afford the assets needed in order to grow and develop.

As well as having positive tax benefits, asset finance can be used to acquire big essentials that the business can’t yet afford outright. It’s particularly attractive to small and medium-sized enterprises who are often working with limited available cash.

What are the benefits of asset finance?

Well, it’s an effective way to access assets if you’re on a tight budget. These assets might include equipment, vehicles, machinery, or even commercial premises where applicable.

These types of physical assets are often vital to the growth and running of a business, but typically require a pretty hefty financial investment. Asset finance aims to solve this problem by helping to supply businesses with what they need, or replacing broken or outdated kit.

What’s an example of asset finance?

A couple of friends start a small cake-making business which operates from one of their homes. Their cakes become so popular that people start asking if they can make other things too. This leads to a book full of potential catering jobs, but they don’t have the equipment or the facilities to fulfil demand.

Asset finance would help them purchase the catering equipment they need to work on a bigger scale, a van to help transport the goods from A to B and perhaps even some bricks & mortar when the kitchen back at home doesn’t cut the mustard anymore.

The monthly repayments are another cost to the business, but potentially worth it once all the extra orders can be fulfilled.

The different types of asset finance available

Hire Purchase

This involves spreading the cost over a specific period of time until it is paid off and you then own the asset. It will appear on your books as an asset from the outset and you will be responsible for all upkeep from day one. This option may also include interest added to the repayments.

 Equipment Leasing

This means you pay a monthly fee for a set amount of time. At the end of that period you can either renew the agreement, upgrade it, return the asset, or pay the outstanding amount for you to own it. This is good for the sorts of kit which needs to be regularly upgraded to the newest model.

Finance Leasing

Somewhere between hire purchase and equipment leasing, finance leasing involves payments similar to renting but for the asset’s lifetime rather than a short period of time. You end up paying the full amount for the asset but never actually owning it. This means you are able to claim the VAT back on it as it will only appear as an operating cost on your books.

Asset Refinance

This is where you use your existing assets to release money or provide finance security when making a deal. Money will be loaned against these existing assets, usually around 80% of the asset’s value.

 If you’re considering funding options for your business, a good accountant might be able to help. Contact us today or click the Live Chat button for more information!

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About The Author

Stephanie Whalley

Serial snacker, compulsive cocktail sipper and full time wordsmith with a penchant for alliteration, all things marketing and pineapple on pizza.

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