Asset finance can unlock cash tied up in your existing business assets or enables you to access new equipment such as machinery or vehicles through a hire agreement with the option of buying the asset at the end of the contract. Common types of asset finance are equipment leasing, finance lease and hire purchase agreements.
What is asset finance? How does asset finance work? How do you finance a business asset? The different types of asset finance The benefits of asset finance Is asset finance the same as invoice finance? Example asset finance scenarios and solutions Does my business qualify?
By using existing assets, you could access money that is tied up in your business collateral, such as property or land. Additional assets are new purchases, for example, plant machinery, vehicles and equipment, which you typically hire with the option to purchase at the end of the agreement.
Rather than a business purchasing an asset outright which includes upfront costs, typically the asset lender purchases the asset and then the business pays a monthly fee for the duration of the agreed term.
Staying ahead of the competition is vital for business success but funding commercial equipment, vehicles or plant can be incredibly costly. Many alternative funding providers offer asset finance as a way for businesses to invest in the latest equipment without incurring significant cash flow problems. In whichever sector you operate, be it construction, manufacturing, logistics or printing, investing in new assets could be more affordable than you think.
In most cases, you can spread the cost of equipment over the lifetime of the purchase. Typical arrangements include hire purchase and equipment leasing. Operating leases are another form of asset finance but you do not have the option to own the equipment once the rental contract has ended. Alternatively, asset refinancing gives you the opportunity to release funds tied up in existing assets.
Whether you are financing a vehicle, machinery, commercial equipment you firstly need to decide which method of asset finance is best for you and your business. Maybe you are looking to release cash tied up in an existing piece of equipment or vehicle then you would look towards straight-forward asset refinancing. Or, you may need access to new business assets in which case you have more choice. There are several ways to acquire the business assets you need without incurring significant upfront costs.
A hire purchase arrangement is a simple way of buying business assets on credit. You receive the equipment straight away and then repay the amount borrowed in instalments, so you spread the cost of the purchase over time. Once the loan has been repaid, you will own the asset outright.
With a Finance Lease arrangement, the finance company buys the asset for the lessee and remains the legal owner of the asset for the entire duration of the finance lease agreement.
In most cases, a finance lease transfers the risk of ownership of the asset to the lessee and as such it will appear on the balance sheet. Any outstanding rentals will be highlighted as a liability.
At the end of the hire term a finance lease, the asset can be either written down to zero or be set to estimated market value.
Sometimes at the end of the hire term, a business can be offered a secondary smaller lease agreement by the finance company depending on business requirements. A business may wish to use a capital lease as the depreciation allows them to expense the assets initially quicker instead over the entirety of the lease agreement.
Are there tax benefits for Finance Leases?
Leasing an asset is highlighted as a monthly expense instead of an owned asset on your business balance sheet. This can be a tax-efficient accounting method depending on how your business operates. Leasing options can also include service plans, breakdown cover and other insurance elements vital to keep your business working.
Having such cover means you don't have to worry about large maintenance costs and possible significant downtime. Consult your accountant for the best tax treatment arrangement for your business.
As with hire purchase, this form of asset finance allows you to use the equipment straight away and spread the cost over an agreed period of time. The difference is that you will not necessarily own the equipment at the end of the term. Instead, you may be able to extend the equipment lease agreement, purchase the equipment outright (factoring in what you have already spent), upgrade it on a new lease or simply return it.
An advantage of equipment leases is that you can upgrade or change your purchase according to your business needs at the end of the agreed term. For example, you may need a larger vehicle, there may be new technology available, or you may simply need more of the machines you purchased. Conversely, it’s really important to think about your timeframe when you take on an equipment lease. You will want to make sure that you are not making repayments on an asset you no longer use.
Also known as contract hires, an operating lease is a set, short-term rental agreement and means that you will not own the equipment. The lender is normally responsible for maintaining the equipment, which is typically loaned to other businesses once it has been returned at the end of each term. Operating leases can be a cheaper asset finance option because you won't pay for the full value of the equipment.
If your business has capital locked within valuable assets such as property, land or equipment, this cash can be released through a refinancing arrangement. The amount you can borrow is dependent on the value of your asset, which acts as security against the loan. This means that if you do not meet repayments, the lender takes the asset in lieu of what’s owed.
Asset refinancing is a reasonably flexible asset finance option, and there is a range of financial products available for this type of lending. It’s important to note that the asset being refinanced must be critical to your business operations.
Asset finance enables you to grow your business using the latest equipment, vehicles and technology. You can choose to invest in new equipment or release funds tied up in existing assets. Funds can be made available relatively quickly with clear terms to ensure your budget is managed effectively.
With leasing, the item counts as a monthly expense rather than an owned asset on the balance sheet, which can be tax efficient for some businesses too. There are various subtypes of a vehicle lease, so you can decide whether you would like maintenance and insurance to be included and whether you need the item for its whole working life or a shorter period.
With many funding options and finance packages available, it’s easy to get confused. Invoice finance is a form of Asset-based lending but the two options are commonly muddled up.
For companies who need to scale quickly and access funding for growth, Asset-based lending or (ABL) is often used by utilising assets such as invoices, machinery, manufacturing equipment, commercial property and other business inventory as the security for the business loan.
While asset finance depends on using existing or additional assets as security, invoice finance is lending based on the number of outstanding invoices a business has. Rather than waiting for a customer to pay an invoice, a lender will advance you a percentage of the invoice amount. This avoids cash flow issues and does not dilute your equity.
Below are some examples of how businesses support and grow with the use of asset finance solutions.
Construction asset finance simply provides your business with access to purchase all types of industrial equipment needed for growth, such as Cranes, Excavators, Loaders, Crushers, Trucks and much more. If you have assets of your own, you can quickly release capital locked up in them, giving you that additional cash boost that your business needs.
We can help arrange finance for most construction equipment, including:
Starting or expanding a fitness or gym business in the UK can be expensive, especially as a single piece of gym equipment can cost thousands to finance yourself. There are options, however. By using equipment leasing you can get the fitness equipment installed without delay. What's more with this method of asset finance you can keep upgrading the gym machines whenever you need to.
The best part, maintenance and full servicing are usually included in the lease agreement. This assurance gives you the peace of mind that you won't be stuck with a broken gym machine causing downtime, or having the need to re-sell to buy new kit.
It's a fact that transport and logistics asset finance plays a vital role for businesses who need to be on the road. Many small businesses such as plumbers, builders, electricians, joiners and delivery businesses all need a Van to make their business work. So why buy when you can lease a van for your business? Van leasing and Van Hire purchase or even a combination of both are options that you can consider.
Manufacturing asset finance is a flexible way to access new equipment or machinery that you need for growth. It improves cash flow and enables you to purchase many types of manufacturing equipment, including Plant, Packaging Food Machinery and more. If your business already owns high-value assets, you can simply release capital tied up in them, giving you that much-needed cash injection.
We finance and refinance the majority of manufacturing equipment, including:
Asset finance can even unlock the capital in existing assets for immediate cash flow requirements or more equipment purchases.
Agriculture asset finance is a flexible solution for your financial growth requirements. It gives you access to purchase many types of farming and forestry equipment, such as Tractors, Combine harvester, Spreaders and more, helping you to invest in the latest high-tech equipment. If you own assets, you can essentially borrow money against the value of them, quickly releasing the cashback into your business.
We can help you finance and refinance agricultural machinery, including:
You can also use our business loan calculator to get an idea of funding costs.
There are many company car leasing options available to small businesses in the UK. Whether you are looking for a single car lease or leasing a car through a limited company, we can help. You'll be leasing the car for a set amount of time, with a set number of miles, at an agreed fixed monthly fee. At the end of the term, you return the car or start a new contract. You never actually get to own the vehicle, it is classed more like a long-term rental.
We also specialise in Fleet leasing, hire purchase and finance leases each of which has its own set of advantages and disadvantages depending on your requirements.
Transport and Logistics asset finance can help your business re-finance or purchase new vehicles such as Buses, Cars, Trucks, Vans and much more, allowing you to spread the cost instead of buying outright. It’s a flexible solution that improves cash flow by keeping your working capital free.
Companies who use heavy goods vehicles for their day-to-day operations know that the upfront costs to purchase such vehicles can be incredibly high. It is just not cost-effective for businesses to buy vehicles outright. Even larger SME's and logistics companies all look towards better financing through HGV leasing companies.
The big advantage is that you can upgrade the truck or HGV. You can even have a sale and leaseback where you can own the vehicle, renew it or give it back to the lender. Some options include:
Hire Purchase where you eventually own asset once you have repaid all the fixed monthly repayments. Great if the intention is to gain ownership of the asset at the end of the term.
Sale and HP Back
A method of unlocking the cash in your own asset and then hiring the vehicle back from the lender. You'll not own the asset anymore, but you've released cash which you can use in your business and you can remain using the asset but within a hire arrangement.
Businesses based in the UK can access IT software and hardware technology using lease finance without the requirement to buy. It is especially attractive for this type of acquisition as technology is always changing. Technology gets updated, faster computer systems and steadily improving software packages can quickly leave older systems redundant and slow.
By using lease finance, you can stay ahead of the game, replacing new computer kit and software solutions for better efficient solutions without the need to purchase outright. There are many types of business equipment that you can take through asset finance. These include:
By using asset finance you can access the latest catering equipment on the market whilst preserving your working capital. There's no need to outlay initial costs to buy kitchen equipment. It can be more effective to use asset finance for a whole range of catering needs. From cooking equipment, cold storage and refrigeration, coffee machines, pizza ovens, dishwashers, cash registers - even vehicles that you may need for food delivery or events.
Maybe you are looking to do a full refurbishment or a new fit-out of your premises there is a flexible finance option to suit your business needs.
To qualify for asset finance, you must operate a UK based limited company with a turnover more than £10,000. The funds must be used for business use only.
"If you do not meet these criteria, we offer a host of other business finance options that could suit the needs of your business."
Chloe Mckenna - Finance Specialist