When starting a business, one might find that there are limited options for funding or borrowing money, largely due to a limited credit history. However, after the initial years of operation, your business may have reached a stage where it’s ready to propel its growth.

One beneficial way to do this is by using asset-based financing as part of a larger business strategy. Instead of investing a large sum of money upfront to acquire necessary equipment and machinery, businesses can spread the cost over time with small, regular payments. This, in turn, enables businesses to preserve working capital while allocating funds to other core areas of growth. Similarly, with existing assets, one can opt to refinance them, further elevating their existing value.

This can be especially beneficial for startups by allowing them to gain access to vital equipment with manageable monthly payments. Essentially, by strategically employing asset finance, businesses can not only improve their cash flow but also promote long-term growth. Whether new or established, asset finance is a valuable tool for businesses to consider.

What is Asset Finance? 

Asset finance is a relatively straightforward funding alternative that allows businesses to acquire essential assets without a large, upfront investment. At the same time, it allows businesses to start utilizing those assets while still paying for them. Businesses also have the option to refinance existing assets.

A variety of assets can be obtained through asset finance, including vehicles, machinery, technological infrastructure, furniture, and hardware. These assets tend to be tangible items that assist and improve a business’s performance.

Essentially, asset finance provides access to high-quality equipment that may not be affordable to purchase outright. This then allows businesses to expand their operations without putting a strain on their working capital. They will have the opportunity to raise finance simply through their existing assets.

Types of Asset Finance

There are a range of asset finance options, each with different terms and benefits.  

• A hire purchase enables businesses to own the asset at the end of their term. However, till then the finance provider retains ownership of the asset. 
• A finance lease enables a finance provider to purchase the asset and then lease it to the business. The business makes monthly payments, and at the end of the lease can either choose to extend the lease, return the asset, or sell it on behalf of the provider. 
• An operating lease is suitable for businesses that require an asset only for a specific period of time. The provider retains ownership of the asset but the business has the option to upgrade to newer models throughout the leasing period. 
• A contract hire is specifically designed for vehicle-related leasing. The provider manages the sourcing and maintenance of the vehicles, while businesses make regular payments for usage of the vehicle over the specified lease term. 
• A sale and leaseback involves businesses selling an existing asset to a finance provider, and leasing it back. This enables the business to free up capital whilst retaining usage of the asset. 

How to Make the Most of Asset Finance?

• First, start by acquiring the essential assets you require, whether it’s vehicles, machinery, office furniture, and more.
• Next, strive to improve your cash flow by spreading the cost of your assets over time. This is especially important to maintain liquidity and ensure that your business can meet its current operational expenses.
• Third, consider asset refinancing. This enables you to unlock the value locked inside your existing assets. Gain the ability to release a lump sum of cash without interrupting your right to use your assets.
• Fourth, make sure your asset finance agreement enables you to access the latest equipment available in the market.
• Fifth, determine the tax benefits you may gain from asset financing. Some forms of asset finance can be fully deducted as a business expense, hence reducing your taxable income.
• Sixth, make sure to plan and budget confidently. The fixed repayment schedule often associated with asset finance makes budgeting easier and more efficient.
• Last but not least, use a broker. Experienced brokers can simplify the whole asset financing process for you. They’ll help you gain access to better deals and ensure you receive expert guidance throughout your partnership. Brokers typically have relationships with multiple lenders, hence the ability to sift through multiple options to find a financial provider that best suits your needs.

Need an experienced broker to help you leverage the power of asset finance? Contact Morgan Insurance Brokers today!