While purchasing business assets outright may seem appealing, it’s crucial to consider the financial implications for your business. The substantial upfront capital expenditure could negatively impact your business’s performance and future growth. Furthermore, tying up a significant amount of capital in assets might lead to missed opportunities for more profitable investments in the near future. 

Hence, this is where financing options like asset finance provide a more flexible and appealing approach towards preserving your working capital whilst still obtaining the required assets. 

Nonetheless. It’s important to carefully evaluate all your options in order to make an informed decision about how to best acquire the assets your business needs. 

What is Asset Financing? 

Asset financing is a flexible funding method that enables businesses to acquire new or used assets. It is a highly recognisable source of financing, and is often used for assets that generate revenue when used. Rather than spending a lump sum of money on an asset, financing it allows businesses to spread the cost of the asset over its lifespan. 

There are several types of asset financing options available: 

• Hire purchase involves the business paying a deposit initially, and then fixed monthly instalments. The asset then becomes the business’s property after the final payment is made. This is an attractive option for businesses who want to invest in heavy and/or expensive machinery. 
• Finance leases enables businesses to utilise equipment for a fixed period of time whilst also being responsible for maintenance, repairs, and operational costs. This is an appealing option for significant assets like factory plants. 
• Asset refinancing is a suitable option for businesses who already invested in equipment but are keen on unlocking its hidden value. Here, the lender would buy the equipment and then lease it back to the business over a specified period. 
• Operating leases are contracts that permit the use of an asset without the need to transfer ownership. This means businesses can avoid the high costs associated with purchasing altogether. 

Benefits of Asset Financing 

If you’re considering asset financing as a viable option for your business, here are several core benefits that might help facilitate your decision. 

• Asset financing enables your business to preserve cash flow. By avoiding large upfront costs, you can utilise your funds for other essential expenses and investments that can help generate profits. 
• With asset finance, your business gains access to higher-quality assets that you may not have been able to afford. This in turn can help your business maintain a competitive edge, thus improving your revenue generation. 
• Asset finance agreements come with flexible repayment plans. These plans can typically be tailored to meet the needs of your specific business, with options available for varying deposit sizes and seasonal payment plans that align with your business’s busiest and quietest periods. 
• Asset financing payments are often tax deductible. This in turn lowers your business’s taxable income, thus providing further savings. 
• By avoiding ownership responsibilities, you save business time and money on tasks like decommissioning, packaging, transportation, and re marketing. 
• Gain access to the latest technology which may be too costly to purchase outright. As a business, regularly replace your older assets with new, updated ones that help you increase your productivity and profitability. 
• Effectively manage capital and debt through asset financing. Since your capital is not tied up in equipment, you can use it to pursue new opportunities, expand your operations or make strategic acquisitions. Likewise, savings from asset financing can be used to pay off existing debt or secure other core facilities. 
• Be able to benefit from inflation. With payments made in instalments with fixed rates, inflation works in your favour as the value of money depreciates. This is because you’ve purchased the usage of your assets at a discounted rate. 

Disadvantages of Buying Assets Outright 

Purchasing assets outright can present several drawbacks for businesses, especially small and medium-sized enterprises. 

• • Outright asset purchases require a large initial capital outlay which can strain your businesses ability to finance other essential purchases. 
  • Spending a large amount of money on an asset can reduce your cash flow, hindering your ability to operate optimally. 
  • If your business takes out a loan to fund an asset purchase, it may miss out on potential investment opportunities that could yield higher returns and accumulate additional liabilities such as higher interest rates. 
  • Costs associated with deprecation, maintenance, and upgrades can be substantial, straining overall business finances.

While outright ownership of assets seems appealing, it does come with a lieu of financial challenges. Choosing the most appropriate method to acquiring assets requires a careful evaluation of your business’s current financial situation and long-term goals.