• Home
  • Blog
    • Business Partner Magazine Archive
    • Write for Us
  • About Us
    • Cookie Policy
    • Disclosure Policy
    • Privacy Policy
    • Terms of Website Use
  • Contacts

Business Partner Magazine

Tips and advice for entrepreneurs, start-ups and SMEs

The Ins and Outs Of Asset Finance

May 25, 2018 by Edward Wade Leave a Comment

Click here to get this post in PDF

Too long to read? Enter your email to download this post as a PDF. We will also send you our best business tips every 2 weeks in our newsletter. You can unsubscribe anytime.

Enter your NameEnter your Email Address

Finance and banking concept For a lot of businesses, new or experienced, the cost of buying assets outright can be a major expenditure. Even if a business has been trading for a few years, the cost of replacing a large asset, or buying new equipment can still leave a burning hole in a company’s cash flow. Regarding new start-ups, owning equipment outright can be a huge expense when cash flow is normally tight, and there is a limited amount of initial investment.

Financing assets can be a great way of disrupting the costs of buying new assets outright. As opposed to spending one large settlement, essentially it allows you to cover the cost of the asset on a monthly basis, breaking up payments. Financing makes the initial investment of a big asset much more affordable.

Asset finance is a general term, used for several different methods of financing. But they all have a similar premise. Hire purchase and leasing are the two most common, with both of them allowing you to pay a monthly fee. Usually, the exact terms of the agreement will depend on the deal put in place with the lender. The payments made towards a hire purchase asset, eventually result in the business owning the asset. Leasing, on the other hand, works slightly differently, instead of owning the asset outright towards the end of the contract, you can instead return it, upgrade it, or pay it off to legally own the asset.

The biggest difference between leasing and hire purchase is that the end at the end of a hire purchase contract, the business will automatically own the asset.

 This article contains affiliate links. For full disclosure see here.

Pros of asset finance

  • For new or growing businesses, it can be a manageable way of handling cash flow
  • Without having to pay one large upfront settlement, asset finance gives you the means of being able to afford top of the range equipment, which you might otherwise not have been able to afford
  • Payments in instalments make cash flow forecasting much easier, giving the business greater scope for budgeting
  • When you lease an asset, the leasing company can be used to carry out any maintenance and repairs on the asset.

Sage  Accounting Banner

Cons of asset finance

  • The duration of some of the hire purchase and leasing deals can be quite lengthy, lasting several years, by which time there may be better assets available
  • A failure to pay any of the monthly instalments could result in the assets being repossessed
  • Any late or non-payments can sometimes have a negative effect on the business’s credit score
  • If an asset finance deal is in the process of going through payment and the asset is damaged or stolen, the insurer may not cover the whole cost, with the business possibly having to cover the shortfall

Cash is king and problems with cash flow are one of the most common causes of business closure. Asset finance can ease some of those pressures, especially for new businesses who only have a limited amount of set up funds. Asset finance gives businesses the opportunity to manage their expenditure with better forecasting and know how much money is going out of the business.

The negative of some asset finance deals is that the length of contracts can be long. If a company wants to move on and buy new equipment again, it can be difficult as the business is already tied into a contract. If the business is looking to raise further finance, it can’t take out on credit based on the value as it doesn’t own the asset.

Asset finance can be an excellent solution for businesses who struggle with cash flow and need to plan effectively. Naturally, it has its pitfalls, but it can be a great way to get top of the range equipment.

You may also like: 3 Reasons Your Company is Spending Too Much

About the Author

Edward WadeEdward Wade: I am a freelance journalist, who studied Business at Sheffield University. Now based in London I produce content online across a variety of different topics.

Filed Under: Finance Tagged With: assets, cash flow, finance

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

  • Facebook
  • Pinterest
  • Twitter
  • YouTube

Recent Posts

  • 5 Things You Should Know Before Starting a Catering Service
  • Five Things to Know About Prepaid Visa Gift Cards
  • Best Corporate Gift Ideas that will Leave a Lasting Impression
  • Six Hidden Costs of Buying a Leasehold Property
  • Advice About Backlink Checkers!

Categories

Archives

Need help with your marketing?

Get our best tips every 2 weeks

Tags

Accounting apps assets brand business growth business skills business success cash flow communication Customer Service Cyber security Data design ecommerce Efficiency employees entrepreneur finance finances health Health and Safety infographic insurance Investing IT leadership legal Management Marketing mindset Outsourcing planning productivity property relationships sales security SEO Social Media software startup Technology Training website workplace

Business Partner Magazine

Business Partner Magazine provides business tips for small business owners (SME). We are your business partner helping you on your road to business success.

Have a look around the site to discover a wealth of business-focused content.

Here’s to your business success!

Copyright © 2019 · Magazine Pro Theme on Genesis Framework · WordPress · Log in