What is asset financing?

calculator for calculating asset finance deal
calculator for calculating asset finance deal

Asset financing is a type of loan designed to enable the purchase of high-value items or resources on behalf of a business. These items or resources are known as assets.

Taking out asset finance makes it possible for a business to secure the assets it needs and pay for them gradually over time through fixed repayments, making asset financing good for cash flow and achieving business growth. Asset financing may also involve a business using an asset it already owns as security against a loan to boost working capital.

A business of any size can make use of asset financing, as long as it can meet the criteria required to secure the loan.

What counts as an asset?

In business terms, an asset is an item of value that provides business benefits. All businesses need assets to carry out operations or generate an income, and may secure assets by purchasing or leasing them.

Examples of business assets include buildings, vehicles, IT equipment, inventory and raw materials.

Types of asset finance

The two main types of asset financing are Hire Purchase and Leasing. Both involve borrowing funds from an asset finance provider to procure a business asset, but differ with relation to what happens to the asset after the loan term.

Once a Hire Purchase asset financing agreement is settled, the asset either automatically becomes the property of the business or they will have the option to pay a final payment and own it outright.

Conversely, at the end of most Leasing asset financing agreements, there is no option for the business to purchase the asset and keep it, although Stewart Hindley is proud to be different. We offer our leasing customers the chance to own their leased assets outright via a process called passing title, for a fee agreed at the start of the loan term.

Why asset financing?

There are many benefits to asset finance for businesses. Many opt for asset finance so that they can spread the cost of large outlays, stay in control of cash flow and put working capital back into the enterprise itself, rather than investing in assets upfront. There’s also no need to provide extra loan security, since the asset itself acts as security.

Asset financing loans can run up to a maximum term of seven years and the repayments are fixed, so a business can budget exactly with no danger of hidden costs. Interest rates for asset finance tend to be lower than those associated with other forms of lending too.

If you’re ready to find out more about asset finance for your business, get in touch with us today.

Stewart Hindley
Specialist financial experts helping you secure commercial loans across the hospitality, leisure and commercial property sectors.

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