- Posted by: Administrator
- Category: Finance
Whether you’re starting a business, or taking it to the next level, the right finance can be a significant factor in driving growth.
Perhaps the growth of your business depends upon the purchase of new equipment to enable you to increase capacity, provide additional services, or win a particular new contract. In that case, asset finance could be the key to unlocking your growth potential.
What is asset finance?
Although there are many different products and services that fall under the heading of asset finance, it essentially refers to all lending relating to tangible assets – usually vehicles or equipment.
This could be giving you access to new assets or releasing cash from the assets your business already owns, so asset finance enables you to get what you need without having to pay cash up front.
Who can use asset finance?
Asset finance can help pretty much any business that requires physical assets. If you can pick it up and take it away, you can probably get it on asset finance. Obvious examples include heavy industry, such as construction and manufacturing, but asset finance can also be used for ‘soft assets’ like computers or EPOS systems.
You can use asset finance for a huge range of items. Perhaps you need a new piece of plant or machinery to replace an old one, or you need to upgrade your kit so you can increase your output, or manufacture a new product.
Or perhaps you run a distribution or transport company, and you need more vehicles to enable you to move into new territories. Even retail businesses can benefit from asset finance, perhaps if they need tills for a new shop, or a telephone system for a new customer services team to process more sales and orders.
Such is the flexibility of asset finance, that you really can get it for a wide variety of equipment ranging from large industrial machinery to the van needed to launch a new ‘man with a van’ venture.
Within asset finance there are many tailored products to suit a range of business sizes to cover some of the different scenarios outlined above. Let’s look at some of the most common forms of asset finance.
This can be a good way of getting the expensive items needed to drive business growth. Rather than having to commit to buying something that you might not need for the long term, equipment leasing enables you to ‘rent’ an item for a period of time.
The scope for equipment leasing is vast and almost limitless, from large scale plant to the office printer or coffee machine.
It’s also very quick – you can usually get the item within days. For most businesses, it’s more affordable than buying outright and can also present a very attractive option if you only need an item for a one-off job in the short-term.
You’ll have fixed monthly costs you can budget for, and the lender will usually take care of maintenance and servicing for you.
At the end of the lease you can return the equipment to the owner, choose to buy it (minus what you’ve already paid towards it) or upgrade for a newer model.
In contrast to equipment leasing, where you’re paying to rent an item, Hire purchase enables you to buy an asset via monthly instalments for a set term.
All the benefits (and responsibilities) of ownership are yours from the outset and once you have finished your monthly payments, the item is yours to keep.
Tax-wise, it appears on your balance sheet as an asset from the get go, whereas equipment leasing counts as an operating cost — and it’s worth discussing these nuances with an accountant before making a decision.
With hire purchase, you will normally be required to put down a deposit and pay all the VAT upfront.
Buying on hire purchase tends to make more sense if you’re securing a piece of equipment that you know you need for the long term. However, you should bear in mind factors such as depreciation and how quickly technology moves on – and how relevant these are to your business.
For example, if your business relies on always having the latest model, then leasing might be a better option for you.