The importance of Asset Finance to #SMEs and #SmallBusiness to recover since Covid-19 and to conserve cash during the subsequent price inflation crisis and energy price rises is immeasurable – underlined by the British Business Bank’s inclusion of the product in all versions of Government supported loan schemes.
Asset Finance isn’t a new phenomenon, and before recent economic events it helped to ensure a business conserved cash flow:
- Spreads the cost of an asset over years, which frees up working capital to be used for other purposes
- The addition of assets to a business can help drive growth
- Lease facilities can avoid the issues of depreciation of the asset, as the company won’t own the asset at the end of the agreement
- Asset Finance removes the use of more traditional facilities such as business loans and overdrafts – which in turn reduce headroom in cash flow and available security and guarantees
- Debt servicing costs are favourable for asset finance compared to unsecured business lending – because by its nature asset finance is supported by a tangible asset as security for the lender – and is therefore less risky
- Leasing and Hire Purchase are treated differently for tax purposes in company accounts – talk to your accountant to confirm which is suitable for you:
- Lease payments appear on your Profit and Loss accounts as an expense
- Hire Purchase is counted as if already owned on your Balance Sheet, and so you account for its depreciation
- Assets can leave headroom in your cash flow so that you can take on work and new opportunities and grow the business.
Asset Finance lenders commonly ‘specialise’ in assets that they fund – a lot of that driven by the expertise that allows them to value and understand the assets that they are funding.
Hard Assets
- Higher value assets, commonly retain their value for longer, including:
- Heavy goods vehicles, light goods vehicles, commercial vehicles and cars
- Agricultural machinery
- Construction machinery
- Manufacturing machinery and plant
- Recycling processing equipment
- Printing presses
Soft Assets
- Usually a low residual value at the end of the term, and often Leased. For example:
- Fit out (excluding installation and related works)
- IT (Hardware and Software)
- Audio visual equipment
- Furniture, fixtures and fittings
- Security systems
- EPOS (Electronic Point Of Sale) card terminals
Assets that retain their residual value can require lower deposits – the opposite of assets that immediately lose significant value as soon as you buy them. For example, manufacturing equipment versus office furniture.
Used Assets
- Lenders will finance second-hand equipment (for example, used vehicles or refurbished machinery or IT). They will independently value the asset, and will have maximum age limits at the end of the finance term.
- “Debt servicing costs are favourable for asset finance compared to unsecured business lending – because by its nature asset finance is supported by a tangible asset as security for the lender – and is therefore less risky.”
- There is a choice of Asset Finance products, depending on what is suitable for the type of asset and your business:
- Leasing Finance: You don’t own the asset – you are in effect renting the asset for an agreed term with fixed repayments
- Hire Purchase (#HP): You purchase an asset and pay for it over an agreed term with an agreed repayment schedule
- Refinance: (or ‘Sale and Lease Back’) Lenders will commonly lend up to 70% against the current value of assets that you already own – less any outstanding debt secured against them
- Operating Lease: A specialised form of Leasing Finance where you company require the asset for a specific term, and not for its working life – commonly used to employ assets against specific projects and contracted periods of work
- Business Contract Hire (BCH): The sourcing, leasing and maintaining (contract option) of business vehicles for an agreed term
Assets can support growth in your business, and asset finance can do more than buy the assets for you – it can leave headroom in your cashflow so that you can take on work and new opportunities and grow the business.
Let us help finance your business while you get on with running it.
