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What is Asset Finance?

Asset Finance: Meaning

Asset finance, aka asset financing, is a form of commercial borrowing where a business uses its assets as security (collateral) for taking out a loan. Asset-based finance has the potential to be one of the fastest and most affordable ways to take better control of working capital and to benefit from a quick cash injection for any purpose, starting at just 4.0%.

Business asset finance is a uniquely flexible facility wherein a wide variety of assets can be used as collateral for loans. Examples of this include commercial vehicles, machinery, plants, premises, and office equipment. Some lenders are even willing to issue loans against company stocks and shares.

As an established and reputable asset finance company, Rosewood Finance can help you access the capital you need at a price you can afford. Use our convenient asset finance calculator for an overview of the options available, or contact a member of our team at any time for an obligation-free consultation.

How Does Asset Finance Work?

There are two main types of asset finance: One of which involves borrowing against existing assets (asset-based finance), while the second (equipment finance) is issued in the form of a loan or lease used to procure new business assets.

The most common example of equipment finance is the classic hire-purchase agreement. Most equipment finance agreements are issued in the form of hire-purchase contracts. The business pays an initial deposit to take possession of the assets in question, after which a series of monthly repayments follow to gradually repay the full balance of the loan.

In the meantime, any equipment or assets purchased will remain the legal property of the hire-purchase issuer. Ownership will subsequently be transferred to the business once the loan has been repaid in full.

Asset Finance

Can a small business or start-up get asset finance?

Yes, asset finance is a flexible, accessible, and affordable facility that can be of great value to smaller businesses and start-ups. An asset finance agreement enables a business to procure equipment, machinery, and other essential inventory without putting a strain on its own on-hand capital resources.

Qualification criteria for asset finance are fairly relaxed (compared to some types of business loans) and comprise mainly the following requirements:

  • Before completing an application, you should have been with the firm for at least six months, while some lenders want a 12-month trade experience.
  • Your lender will examine your credit score to assess whether you are likely to default on your loan.
  • Evidence of your capacity to easily repay your loan as agreed upon would be required, which might include cash flow predictions, financial documents, and so on.
  • You will need to ensure that your application falls within your lender’s minimum and maximum loan size requirements, which differ significantly from one lender to the next.
  • Assets of value must be provided as security for the loan you receive, which typically takes the form of the assets the borrower intends to purchase with the money.
  • Additional criteria and variations of the above may apply to some lenders, so it is important to compare as many offers as possible to find a competitive deal. Particularly if this is your first time applying for asset finance, it is highly advisable to seek the input and representation of an independent broker who can ensure your requirements are paired with the right lender.

    What is Asset-Based Finance?

    With asset-based finance, a business is able to quickly raise almost any amount of capital required for any legal purpose by securing a loan against the value of its owned assets.

    An asset finance agreement can be straightforward to arrange, with flexible terms and conditions to suit most requirements. Where a business already has ownership of inventory, machinery, or equipment, it has a high likelihood of qualifying for affordable asset-based finance.

    But as is true with all types of secure borrowing, it is vital to factor in the potential benefits and drawbacks of asset-based finance before entering into an agreement.

    Advantages of Asset Finance:

    • Much quicker and easier to arrange than a conventional bank loan
    • Fast access to significant sums of money for any legal purpose
    • Flexibility of gradual repayments over several months or years
    • Fixed rates of interest that are not subject to change
    • Low rates of interest when secured against valuable assets
    • Comparatively relaxed lending criteria with poor-credit loans available

    Disadvantages of Asset Finance:

    • Risk of asset repossession in case of late payments or defaults
    • Available only to established businesses with assets of value
    • Not a viable long-term solution for working capital issues
    • Assets used for security cannot be sold or replaced in the meantime

    At Rosewood Finance, we can provide you with the objective and impartial advice you need to find the right asset finance product for your business. To learn more about the potential benefits of asset finance or to discuss your requirements in more detail, call today for an obligation-free consultation.

    Can my Assets be Repossessed?

    The short answer is yes, because asset finance is a secured loan. These loans are made on the basis of security (referred to as collateral), which the lender can legally reclaim if the loan is not repaid.

    As a result, it is vital that you thoroughly understand the terms and circumstances of the agreement you are given to ensure you are comfortable with the possible dangers involved. It is also critical to evaluate all conceivable outcomes so that you are completely prepared for any eventuality (for example, an unexpected financial slump).

    Equipment Finance

    Business equipment finance provides small and large companies with the funds needed to purchase loan equipment of any kind. With a flexible business equipment loan, essential assets can be procured without eating into a company’s working capital.

    At Rosewood Finance, we specialise in affordable equipment asset finance for UK businesses. For more information or to discuss the benefits of equipment loans in more detail, call today for an obligation-free consultation.

    Asset Finance

    What is Equipment Finance?

    Equipment finance is a specialised financial product issued to enable businesses to access the equipment they need to fuel their operations. Most business loans for equipment are issued in the form of secured loans, where the equipment itself is used as security.

    Asset and equipment finance allows the business to spread the costs of major purchases and investments over a series of affordable monthly repayments. Loan terms can be anything from a few months to several years, and equipment loan rates vary significantly from one product to the next.

    Ownership is transferred to the borrower only when the facility is repaid and the agreement comes to an end.

    Why Do Businesses Use Equipment Financing?

    Even where a business has the on-hand capital needed to purchase essential assets, it may still choose to finance business equipment with a specialist loan. Doing so enables the organisation to retain as much working capital as possible and to better manage its cash flow.

    There may also be instances where covering the up-front costs of major equipment purchases is simply not an option. The higher the value of the asset, the bigger the benefits of affordable business loans for equipment.

    What Are the Different Types of Equipment Financing?

    All equipment financing agreements are unique, with terms and conditions tailored to meet the requirements of the applicant. Loan types differ from one equipment finance company to the next, though they typically fall within one of the following categories:

    • Small business equipment loans
    • Equipment leasing
    • Hire-purchase agreements
    • Plant equipment finance

    There are also those who specialise in equipment loans for bad credit or applicants with a history of bankruptcy.

    Interest rates and borrowing costs on equipment loans vary on the basis of several key factors, which include the loan amount, the applicant’s credit score and financial status, the length of the repayment period, and more.

    If you would like to learn more about equipment finance or discuss your eligibility for a flexible business loan in more detail, call Rosewood Finance anytime for an obligation-free chat.

    What Can Equipment Finance Be Used For?

    One of the most attractive aspects of an equipment finance loan is its flexibility. Within reason, small business equipment financing can be used for any legal purpose whatsoever.

    Just a few of the business types and sectors that routinely turn to equipment finance providers when procuring assets of value are as follows:

    • Hotels and hospitality
    • Event planning and management
    • Garages and mechanics services
    • Farming and agriculture
    • Transportation and logistics
    • Manufacturing and heavy industry
    • Laundry and dry cleaning
    • Retail and e-commerce
    • Office and IT
    • Construction and property development

    Equipment finance is the backbone of the UK’s SME community, where covering the costs of major asset investments upfront is often out of the question.

    What Are the Benefits of Equipment Finance?

    Using an equipment financing facility to lease or purchase an asset can be beneficial over outright purchases in the following ways:

    • 1. Tax Efficiency: It is not classified as an owned asset for tax purposes. This can make equipment financing a more tax-efficient option than outright purchases in some instances.
    • 2. Better Cash Flow Management: Equipment finance negates the need to use significant sums of on-hand capital to cover equipment procurement costs. The business can therefore retain better control of its working capital and ensure optimum cash flow.
    • 3. Access to Better Equipment: By spreading the costs of major purchases and investments over a period of time, businesses are often able to procure high-value assets of higher quality than they would otherwise be able to afford.
    • 4. Predictability and Affordability: Equipment finance contracts almost always attach a fixed rate of interest, so you know exactly how much you can expect to repay per month. There were no sudden increases and no nasty surprises along the way.

    Can I Get an Equipment Loan?

    It depends entirely on your current financial position and the general outlook of your business. Most providers base their lending decisions on applicants’ credit scores and their business income levels at the time.

    Specialist ‘subprime’ loans are available to applicants with imperfect credit, which typically (though not always) attach slightly higher rates of interest and overall borrowing costs.

    Hire or Purchase

    Hire-purchase provides businesses with the opportunity to cover the costs of major purchases over a series of affordable installments. With a hire-purchase agreement, high-value assets can be procured right away and paid for gradually.

    What is a Hire-Purchase Agreement?

    Often abbreviated simply to HP, hire-purchase is the most common form of equipment finance facility issued in the UK. Hire-purchase agreements work in the same way for businesses as for private borrowers, spreading the costs of major purchases and investments over a series of monthly repayments.

    With hire-purchases, a deposit is payable (usually 10%) to get the facility underway, and VAT is paid in advance. The total balance of the purchase is then divided over a series of ongoing monthly instalments, over the course of anything from six months to five years (sometimes more).

    Hire-purchase provides a flexible pathway to asset ownership, but the equipment remains the property of the loan provider throughout the course of the agreement.

    The business only takes ownership of the equipment at the end of the agreement, when the facility has been repaid in full.

    In the interim, the business may be prohibited from modifying, selling, or loaning the equipment, as it does not yet belong to them.

    Hire-Purchase versus PCP

    Choosing between a hire-purchase or personal contract purchase is primarily about your long-term intentions for the asset. Both facilities work in similar ways; the initial deposit is followed by a series of monthly repayments.

    The difference is that with PCP, ownership of the assets is not automatically transferred to the business at the end of the agreement. Monthly repayments on a PCP agreement will usually be lower, but at no time does the business gain ownership of the asset.

    At the end of the agreement, the loan issuer may provide the opportunity for the business to take ownership of the asset after making a final ‘balloon’ payment. PCP is a closer match to leasing than hire-purchase, but it may still provide the possibility of obtaining equipment ownership.

    Alternatively, at the end of the contract, the equipment can be returned to the issuer, and the contract has ended.

    For more information on the potential benefits of hire-purchase or to discuss PCP asset procurement in more detail, contact a member of the team at Rosewood Finance today.

    FAQ’s About Asset Finance

    Who can benefit from asset finance?

    Asset financing may be a feasible and cost-effective option for many sorts of businesses. It enables both small and large enterprises to acquire vital assets and equipment without having to pay for them in advance. This is especially important for smaller enterprises that do not have large capital reserves on hand.

    Who is eligible for asset finance?

    Flexible lending criteria are one of the biggest points of appeal in asset finance. All applications are reviewed based on their total worth, but you can expect your lender to prioritise particular aspects of your business. Examples include your recent financial performance, credit history at the time of your application, the amount of money you need to borrow, how quickly you want to return your loan, and so on.

    What types of assets can be financed?

    Most asset finance specialists impose no specific restrictions on the types of assets that can be financed with their funds. Typical uses for asset finance include the purchase of business premises, IT equipment, machinery, vehicles, and essential inventory.

    Can individuals use asset finance?

    Yes, although some lenders restrict their products exclusively to commercial customers. If you plan on applying for asset finance for a private purchase or investment, discuss your intentions with your broker to ensure you target the right provider.

    How does asset finance differ from traditional bank loans?

    Asset finance has the potential to be more flexible and affordable than a traditional bank loan. Arranged each time as a bespoke facility, every asset finance agreement has unique terms and conditions tailored to meet the exact requirements of the borrower.

    Traditional bank loans typically require collateral in the form of cash or property, while asset finance uses the assets being purchased as collateral. Additionally, asset finance may offer more flexible payment terms than traditional bank loans.

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