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What is Asset Finance?

Asset finance is a method that enables businesses to acquire essential equipment, machinery, or vehicles without paying the full cost up front. Instead of using valuable cash reserves, you spread the cost over a fixed period through regular, manageable payments. This helps protect your cash flow and allows your business to acquire the necessary assets to grow.

Types of Business Asset Finance

There are two primary types of business asset finance: Hire purchase and leasing. The key difference is in ownership.

• Hire Purchase: You make regular payments to lease or rent an asset. Once you've made the final payment and a small 'option to purchase' fee, you gain full legal ownership of the asset. This is a great choice if you want to own the asset at the end of the term, such as manufacturing machinery or commercial vehicles.

• Leasing: This is a long-term rental agreement. You pay a fixed monthly fee to use the asset, but the finance provider always retains ownership. At the end of the term, you can return the asset, extend the lease, or upgrade to a newer model. Leasing is popular for assets that require regular upgrades, such as IT equipment or company cars.

What Business Assets Can Be Financed?

A wide range of tangible assets can be financed, including:

• Vehicles: Vans, lorries, and company cars.

• Machinery: Manufacturing equipment and plant machinery.

• Technology & IT: Computers, servers, and telecoms equipment.

• Office Equipment: Furniture, photocopiers, and security tech.

• Medical Equipment: X-ray machines and diagnostic tools.

Benefits and Drawbacks of Asset Finance

Choosing the right type of asset finance is an important decision. Here’s a quick overview of the key pros and cons to help you compare asset finance options.

Benefits	Drawbacks
Protects Cash Flow: Avoid a large initial payment.	Higher Overall Cost: The total amount paid exceeds the outright purchase price due to interest.
Fixed Payments: Makes it easy to budget and forecast expenses.	Risk of Repossession: The asset can be repossessed if you fail to make payments.
Access to New Assets: Stay competitive with the latest equipment.	Limited Flexibility: You may not be able to sell or modify the asset without the other party's permission during the agreement.

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Asset finance case studies - our customers

• Increase in productivity with new forklift truck
• Retail to re-open with shop refit & refurbishment
• Ambitious SME agrees funding injection

Increase in productivity with new forklift truck

An online distributer found themselves struggling with manoeuvring pallets around with a single pump truck. To save time, they believed that a forklift truck would make their day more efficient and productive.

Whilst the solution was an obvious one, cashflow did not allow the option for them to purchase one outright. Asset finance allowed them the option to finance lease a suitable fork lift truck, with affordable monthly payments over three years.

Retail to re-open with shop refit & refurbishment

A client who had recently purchased an existing retail franchise, was informed that the premise would require refurbishment before it could re-open. All their cash had gone into the purchase of the franchise and this additional cost came as a surprise.

The most suitable solution to get their new franchise up and running on time was asset finance. This option gave them the cash they needed up front to pay for the shop refit and open as planned. With the added reassurance of spreading repayments over five years.

Ambitious SME agrees funding injection

An already well-established SME with ambitious plans to take their business to the next level secured funding through asset finance. In order to progress their business, they desperately needed to invest in their technology and operational equipment, including new software and telephone systems.

By integrating these new systems, their business plans demonstrated that they could take on more business with the staff they already had and grow by 40% in the first year.

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Asset finance explained

Whether you're starting up or growing your business, there will be times when you need to invest in new or replacement equipment to get the job done.

Asset finance is a lending agreement that is used to obtain the tools of your trade, such as furniture or machinery - without having to pay the total cost up front. It can also be used to refinance assets to release equity.

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What are the different types of asset financing?

Finance lease

Also known as 'leasing', a finance lease is very similar to renting the equipment, in return for payments which are usually offset against taxable profit. The range for a finance lease is normally between one and five years and is designed to last until the equipment expires - although you can renew and continue to 'lease' it. Finance leasing provides flexibility and freedom - you don't have responsibility for something that you do not own.

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Hire purchase (HP)

Also known as a 'Lease Purchase', a Hire Purchase is very similar to finance leasing, except once you get to the end of the 1-5 years, instead of handing back the equipment, you own it. It allows you to spread the cost of purchasing equipment, which is ideal as long as the well-being of the assets is maintained and looked after.

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Contract hire

Contract hire is very useful for vehicles, whether you're looking to purchase a van or more specific equipment - such as a tractor or a digger. The payment methods are made on the value of the asset (vehicle) and are spread over a specific term. Repayments are based on the asset value and the costs are worked out over the length of the agreement.

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Operating lease

This type of asset finance is a good match for businesses that rely heavily on the use of technology. If you use an operating lease, your payments only last until the expiry date has been reached. Once the asset stops being useful, you pay the difference of the original price and the residual value, once the agreement has expired.

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Refinancing

Refinancing allows you to revise your payment schedule when repaying your debt. It also enables you to renew your loan, therefore replacing an old loan with a new one. Refinancing is useful if your credit ratings are poor. For example, instead of using several credit cards with different interest rates, it will allow a loan with the same amount, which will then drop the interest down, as it is only one loan you are paying back.

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What are the benefits to asset finance?

• You are not required to pay the total amount of the asset up front

• Risk is reduced - if you can't keep up with payments, you'll lose the assets but not your home

• Fixed payments can make it easier to control finances

• It allows you to purchase higher specification equipment

• The substitute finance option leaves bank facilities unaffected

• There are potential tax benefits (for clarification, please consult your accountant)

• Fixed payments can make it easier to control finances

• No responsibility - if the asset breaks, the leasing company carries the risks

• Easy to upgrade

• Ensures you can plan around your payments and budget

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Find Out More About Asset Finance

• Contract Hire
• Asset Refinance

• Hire Purchase