Asset finance is a type of lending that allows business owners to finance new assets such as equipment, machinery, and vehicles. It also enables businesses to release finance from the value in assets the business already owns. Typically, a lender will offer around 90% of the asset value which is worked out by the effecting depreciation.
If a business defaults on its payments, an asset-based lender can seize the asset from the business and sell it to pay off the remaining debt.
Asset Finance Includes
- Equipment leasing
- Hire purchase
- Finance leases
- Operating Leases
- Asset refinance
Benefits of Asset-based Finance
- Because the lending is asset-based, it means your business can invest in assets multiple times if required.
- Due to asset-based loans having fewer qualification criteria, it can often make this form of finance quicker and easier to access.
- Asset-based lending can be used as a stepping stone to other forms of credit. This is often easier for new businesses that are building up their creditworthiness.
Limitations of Asset-based finance
- As the loan is secured on your business’s asset, in the event of a default, the asset would be seized.
- If the assets you want to use as collateral are given a low valuation, it could substantially reduce the number of funds you're able to obtain. As well as this, if your asset increases in value, your loan limit will not increase.
- Costs can be high when your asset is industry-specific or there is a limited appeal from the lender.
An off license, all food, and utilities for household purposes, and greengrocers in one store. They launched 9 years ago and currently now have two convenience stores in Sussex.
With the business proving to be successful they decided to refit one of their stores, as well as upgrading their fridge’s and introducing new assets such as coffee machines. But with refitting and bringing in new and upgraded assets it was costly, so they decided to take out a loan as not to affect their cash flow. After speaking to one of our experts it was decided that the best decision was asset finance.
Benefits of using asset-based finance
- Invest in assets multiple times.
- Fewer qualification criteria allow businesses to get the funds quickly.
When the finance was approved, the client was able to refit one of their stores to a high standard which improved revenue and overall customer experience. They were able to do this without having an impact on their cash flow which is essential for the business to run stress-free and without pressure.
If you feel that Asset-based finance is the best option for your business, do not hesitate to give one of our experts a call to get this process moving on 0203 880 9880.
Think Business Loans allows you to compare all aspects of the various financial solutions, comlpete the loan journey below and in a matter of minutes find out what you are eligible for.