Why businesses are being attracted to asset finance

23/11/2017

Every business needs access to a variety of assets to perform to its maximum potential. Whether that’s state-of-the-art plant and machinery to produce quality products or PCs for all your staff, it’s all valuable – but can come at a cost.

Expensive purchases like this are a common cause of short-term cash flow woe, and it’s often difficult to plan ahead. For instance, when a vital piece of machinery suddenly breaks, it will usually need to be replaced quickly.

Perhaps that’s why almost a third of businesses have used asset finance solutions such as hire purchase and finance leases to fund these investments, according to findings from Cambridge & Counties Bank.

Of the 29% which have done so over the past five years, 20% used it to purchase new plant or equipment. However, many others used it to access working capital after being turned down for other forms of funding, with 15% failing to extend overdraft facilities and 10% had been turned down for a loan.

So could asset finance benefit your business in a similar way?

What is asset finance?

Asset finance allows businesses to purchase plant, equipment or machinery without tying up their cash flow.

There are two main types of asset finance: hire purchase and finance leases.

The difference between the two is that, through hire purchase, you will own the asset at the end of the agreement, whereas finance leases give businesses the option of essentially borrowing the asset for a set period.

It is also possible to release working capital from existing assets through asset refinance.

Growing in popularity

Recent years have shown an impressive rise in asset finance as more and more businesses realise its benefits.

According to official figures from the Finance & Leasing Association (FLA), the asset finance market has shown a strong performance so far in 2017, with new business overall 6% higher than in the previous year.

Also, FLA calculations show that the industry financed more than 35% of UK investment in machinery, equipment and purchased software in the twelve months to June 2017 – an eight-year high.

Benefits of hire purchase

• Avoids the cash flow implications of buying new assets outright
• Your business can access assets of a higher specification
• Interest is typically lower than that of an overdraft or bank loan
• Fixed monthly repayments allow for accurate cash flow forecasting
• Claim capital allowances against tax on commencement of the hire purchase agreement

Benefits of finance leases

• Avoids the cash flow implications of buying new assets outright
• Avoid asset depreciation as you only use the equipment while you need it
• Fixed monthly repayments allow for accurate cash flow forecasting
• Deduct the cost from taxable income as a trading expense

Benefits of asset refinance

• Provides access to working capital that’s otherwise tied up in assets
• The funding that asset refinance generates can be reinvested into further asset growth
• Fixed monthly repayments allow for accurate cash flow forecasting
• Protects your company from asset depreciation

To find out more about asset finance and how your business could benefit, download our Essential Guide to Asset Finance. 

As a commercial finance broker specialising in asset based finance, Hilton-Baird Financial Solutions can introduce the most suitable solution for your business. To find out more about how asset finance could help your business, call our team on 0800 9774833 or email info@hiltonbaird.co.uk.