Asset Finance could help your business grow. Here, ASC Finance explains what it is and how it could help workshops specifically.
When you get a loan from a bank, lenders will look for a security as collateral for the loan. A security is an asset, such as a vehicle or property, which the borrower pledges against that loan in case the borrower is not able to keep up with the loan payments. Lenders have the legal right to liquidate the asset to recover the loan amount.
Lenders use security to reduce their risk when lending money to borrowers. Security is often in the form of a property, but there are other solutions. One of them is Asset Finance, where the lender uses the borrowers’ assets as a security to the loan.
In other words, the concept of asset finance is rather simple – instead of paying to purchase the asset up front, the payments are spread over an agreed period, varying from a few months to a few years, depending on the nature of the business and the type of asset involved.
What are the types of Asset Finance available?
There are two main types of Asset Finance – Hire Purchase and Finance Lease. We know that in the independent aftermarket most businesses are looking to raise funds to purchase a key piece of machinery or technology or update their capital equipment on a regular basis – and this is where Asset Finance can be useful.
Hire Purchase allows you to purchase a piece of machinery and spread the purchasing costs over its working life. It also offers flexibility on the cost of a deposit, regular monthly payments, and final lump sum.
Finance Lease allows you to rent the equipment for a fixed period. You would generally have full ownership to use the equipment and be liable for its upkeep. The business does not own the underlying asset as the name suggests – it is merely rented.
Is it for all workshops?
Purchasing an asset allows you to buy machinery (or other items) and benefit from their use as the business pays for it through time. The business’ capital will not be locked up as in a large purchase. Also, you can spread the cost over time and in some cases the cost of machinery maintenance is covered by the lender. This type of finance can be cheaper in the long term and allows you to use capital elsewhere.
Working capital off an asset allows a business to use the asset for regular renting costs without paying upfront for the full cost of the asset. The rental period is specified and often at the end of the lease, the owner of the asset may renew the lease at a lower cost. Generally, the terms are fixed, and usage parameters are set in the beginning of the lease.
How could you benefit?
What will work best depends on your business and what you are looking to do with the loan. Your business may need to purchase a major asset (or a group of assets) be it machinery for repair, or a fleet of vehicles. Unsurprisingly, this sort of purchase requires high upfront expenditure, which depending on your cash flow, you might not be able to afford. That is where forms of asset finance can play their part in easing the process of securing finance.
ASC Finance for Business knows that many businesses don’t know what their finance options are, and this is where we are able to help. We take away the hassle and have been helping businesses for over 50 years.