Asset finance can be used to purchase new equipment or release cash tied up in your existing assets.

We know how challenging it can be to stay ahead of the latest equipment in any business – whether it be laptops, telephones and company vehicles or machinery vital to daily operations. With advances being made all the time it can be extremely challenging for any business to find the extra funds required to make this type of investment.

You may even need to make a purchase to be able to operate but don’t yet have the working capital to pay for it.

Don’t worry, we can help. At Compare Your Funding we work with all major funders and can get you set up with great rates fast for all types of asset finance.

Asset finance allows you to borrow against the value of the equipment you need. Take, for instance, construction or company car finance, it’s basically a form of financing that allows SMEs to get their hands on expensive assets quickly while paying back the debt in small manageable instalments plus interest.

It means you can get started using otherwise expensive machinery or equipment without having to make a large, possibly prohibitive payment.

There are several main types of asset finance available

Hire purchase

This works very much like it does for individuals using this type of facility. The hire purchase provider keeps ownership of the asset whilst leasing it over a set term to your business for an agreed, regular fixed payment. You may make a larger initial payment followed by smaller payments on an agreed schedule. At the end of the agreed period, you can choose to buy ownership of the item outright with a further payment to the provider.

Finance lease (or capital lease)

This differs as you will only ever rent the asset – there will be no option to purchase the asset outright. Again, payment is made with regular payments to an agreed schedule. This normally lasts until the finance provider has recouped the purchase value of the asset. In some instances, the finance company may allow you to share in a percentage of the sale value of an item once it has been sold.

You may be able to offset these rental payments against your tax but bear in mind this is not possible with long funding leases. In this instance the finance company retains the right to any capital allowances, but you can still reclaim VAT.

Equipment leasing

Equipment leasing is very similar to finance leasing. The provider buys the equipment required and then rents this to you for a regular fixed fee over an agreed period. Once that period ends, you can choose to extend the lease, upgrade the item, buy it at an agreed sum or simply return it to the provider.

Unlike hire purchase, maintenance and servicing costs for equipment leasing are down to the provider, meaning that you don’t need to worry about this. As an operating cost, equipment leasing can be offset against gross profit as usual.

Operating leasing

Operating leasing is for specialist equipment or machinery that you may not want to use for the full duration of its useful life, or ever have a desire to purchase / own outright.

Operating leasing is basically renting an item over a short or medium term, with rental costs based on the length of time the asset is required. This type of financing is often cheaper than equipment leasing as the business only pays for the calculated value of the item over the limited lease time agreed.

Asset refinancing

There are basically two forms of asset refinancing: the first is simply using a company’s assets (physical or otherwise) as security against a loan.

The second is asset-based lending. This is where you sell an asset to a funder for an agreed lump sum. The business then leases back the asset sold from the finance provider – thus repaying the lump sum paid.

Asset refinancing differs from a simple secured loan in that a business can use physical assets they may only partially own as collateral, but only up to the level of equity they have in that item.

For example, you may have a piece of equipment worth £10,000 that you are purchasing under a hire purchase agreement but only have £2,000 left to pay. Therefore, you have £8,000 equity in that asset and can apply for asset refinancing against this asset to this value.

Once the refinancing has been agreed, the business makes regular repayments over an agreed period to repay the loan with interest.

Contract hire (or vehicle asset finance)

This form of asset financing relates to vehicles only. If you wish to expand your fleet a contract hire provider sources the vehicles you require. Then you pay a regular amount over an agreed leasing period.

The responsibility for any vehicle maintenance is with the provider and they may even run fleet management services for you depending on the number of vehicles the contract covers. This also saves you time doing the normal management and budget-consuming tasks that accompany vehicle ownership. The provider is responsible for finding and buying a new vehicle, maintaining it and disposing of it at the end of the leasing period.

Asset financing is suitable for all size of business, from large corporates through to sole traders and SMEs. Traditionally, this type of funding was mainly used by big businesses, but with lower minimum levels now available it is more accessible to all kinds of businesses seeking asset-based finance.

Please be aware that some providers do specialise in certain company types but our specialist at Compare Your Funding will guide you through and only approach the relevant funders for you.

Asset finance is great for cashflow – it lets you pay for expensive items or release funds tied up in them for regular, small manageable payments, plus interest.

Almost all hire purchase agreements require you to first pay a deposit.

One of the benefits of asset finance is that it is easier to obtain than a traditional bank loan. Depending on the funder and amount being borrowed, you could get an initial decision in as little as 24 hours. Once agreed, there will be a short processing period before funds are released to you.

The asset itself effectively acts as the security making this an attractive form of funding. It is unlikely that any personal guarantees will be asked for. However, additional guarantees may be requested if your business is developing or your balance sheet shows you are borrowing heavily.

With this type of funding you generally get fixed interest rates and fixed payments. This makes it easier for you to budget properly and amange your cashflow. Also, the timeframe for repayments can be flexible so to ease the burden you can set it over a longer period, typically up to five years.