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Asset Finance

What is Asset Finance?

Asset finance has grown by a total of 6 percent in the past year, according to the Finance and Leasing Association, and more and more small businesses are beginning to show an interest in this form of business loan. IT-based asset finance is showing improvements of 39 percent since 2014, and machinery and vehicle asset finance have grown by an estimated 6 percent and 21 percent respectively, but just what is asset finance, and how could it help emerging small companies?The concept of asset finance is very simple – whereas property is used as collateral in commercial mortgages, and debts are used as collateral with traditional business loans, assets are collateral when it comes to asset finance. Asset finance is most commonly utilised by businesses who require physical equipment to help them grow and develop, but don’t wish to use day-to-day cash flow resources to fund these new assets. The primary advantage of asset finance is to save on the initial costs of new business equipment, which can free up cash for business expansion and innovation.

Types of Asset Finance

While there are many different types of asset finance available, there are two variations that are proving to be very popular amongst growing SMEs: leasing, and hire purchasing.

  • Leasing

    Leasing asset finance is when the chosen lender retains ownership of the equipment. The equipment is simply leased from the lender for as long as required.

  • Hire Purchasing

    purchasing asset finance is when the lender retains ownership of equipment until the business has made enough repayments to cover the full costs.

Whichever type of asset finance a business chooses, lenders will typically offer rates for ‘hard’ assets, such as manufacturing equipment, and ‘soft’ assets, such as IT software. Funding is provided in exchange for a security interest in a business’’ most valuable assets.

Benefits of Asset Finance for Small Businesses

There’s two primary benefits for small businesses taking out asset finance – typically approval rates are higher than for traditional banks loans for SMEs, and asset finance is, on the whole, less risky for the borrower. Approval rates are higher because lenders retain ownership of the assets until repayments have been made in full – if a business fails to make repayments, lenders don’t lose out financially. And it’s less risky for borrowers simply because if repayments aren’t made, a company loses nothing but the asset collateral – not their premises, or their business.

SMEs may also find that rates for asset finance are more attractive than for traditional lending. Compare asset finance rates online at compareyourbusinesscosts.com to see if your business could find an affordable deal that could directly facilitate growth and development for your company.

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