A key question many businesses ask themselves when acquiring new assets is whether to purchase them outright or through a hire purchase agreement. Commercial asset-based finance can be a reliable solution for businesses facing cash flow issues. 

It utilises a business’s assets as collateral for a loan, with the amount financed potentially reaching up to 100% of the asset’s market value. Such financing can be secured by real estate or other assets such as machinery, equipment, and vehicles.

There are two common types of commercial asset-based financing: 

First, invoice financing allows businesses to access working capital tied up in unpaid invoices by utilizing the accounts receivable ledger as collateral. This enables cash flow to be brought forward, allowing the business to receive the invoice amount when it is issued rather than waiting for payment from the customer.

Second, equipment finance is for businesses that need to purchase equipment, such as machinery or technological infrastructure. This type of financing is self-securing, which means that the equipment purchased acts as collateral for the loan. If the borrower defaults, the lender has the right to repossess the equipment. Common types of equipment financing include hire purchase, an operating lease, and finance lease. 

In essence, both types of asset-based financing utilise a business’s available assets but work in different ways. More often than not, they’re utilised complementarily, as businesses tailor their financing to multiple needs. 

What type of businesses benefit most from commercial asset-based finance? 

Commercial asset-based financing can benefit a variety of businesses, depending on specific needs. Most prominently, businesses that may benefit most include: 

• Asset-heavy businesses. These are businesses that rely on fixed assets like vehicles, machinery, and other equipment to generate sales. Typically, these entail businesses in construction, manufacturing, and healthcare, which require expensive equipment to operate. This allows them to acquire the necessary tools and equipment without large upfront investments. 
• Service-based businesses. These are businesses that are less reliant on fixed assets. Invoice financing allows these businesses to access the working capital tied up in their unpaid invoices. Hence, it’s best for businesses with strong customers and a high volume of outstanding invoices that need quick access to cash.
• Alternatively, many businesses, especially those that operate in multiple sectors or have both physical assets and accounts receivable can benefit from using both types of asset-based finance to support different parts of their operations. 

Equipment financing helps with acquiring or upgrading equipment, while invoice financing boosts cash flow by accessing funds tied up in unpaid invoices. This combination provides flexibility in managing different financial needs across various areas of the business.

Is commercial asset finance right for my business? 

Key considerations to help you decide if commercial asset-based finance is right for your business: 

• If your business is experiencing cash flow issues or you require access to working capital immediately, commercial asset-based finance can be a reliable solution. 
• If your business currently owns assets that can be used as collateral, then commercial asset-based finance can be an option. 
• If your business is keen on growth, then commercial asset-based finance is a scalable solution to fund your growth sustainably. 
• If your business is struggling to meet the eligibility requirements set out by banks and various financial institutions, commercial asset-based finance is a good alternative. The application process is less strenuous and time-consuming. 
• If cost is a factor, then commercial asset-based loans are a cheaper alternative compared to conventional business loans. 

The best way to go forth is to then determine the specific type of asset based finance required. Then, find the right lender with the financing arrangement that best suits your operational needs. 

How can a finance broker help? 

Navigating the complexities involved in accessing commercial asset-based financing can be challenging without the right assistance. Consider enlisting the help of finance brokers to help source the most appropriate asset financing options. 

Finance brokers have immense knowledge surrounding various financial products and services, and guide you towards partnering with a provider that meets the unique needs of your business. More often than not, brokers are able to help you secure a better rate and term than you would be able to source on your own, largely due their industry connections. 

If you’re a business looking to leverage the power of commercial asset finance to sustainably grow your business, consider reaching out to our team of experienced brokers at Morgan Insurance Brokers. We’ll strive to help you meet your business goals through strategic commercial asset financing.