Asset finance is a short term loan secured directly on the assets of a business such as equipment, machinery or vehicles. This can be new funding for the acquisition of new assets, or refinance using existing unencumbered assets as security. The amount available to borrow is limited to a percentage of the value of the underlying asset.
Hire Purchase – You legally own the asset once all payments are made. Both asset and liability are shown on your Balance Sheet. This is normally used for assets that are going to be held for some time.
Equipment leasing – The lender buys the asset and effectively rents it to the business. Generally, less funding is needed up front and the VAT is spread over the lease period, at the end of the period the asset can be purchased for a pre-agreed amount. This can be a more flexible option for assets that are replaced more often, such as vehicles or IT.
Have you considered?…..
- The length of time you are likely to hold the asset, as this may determine whether you opt for HP or a lease. You don’t want to locked into making payments on something you don’t need.
- Some of the smaller asset finance providers specialise in niche assets
- Using asset finance to acquire assets as opposed to using cash
- Refinancing existing assets to provide additional cash flow
- Leveraging against the assets of “Target” to provide funding for an acquisition