What Is Asset Finance?
Essentially, businesses use asset finance solutions to buy equipment without having to pay a lump sum upfront. In most cases, asset finance helps fund plant, vehicles, production equipment IT and telecoms systems. First, an asset finance provider funds the purchase. Subsequently, the business makes regular contractual payments over an agreed period of time. It leases the asset for a duration between 12 months and 6 years for a fixed payment, unaffected by interest rates.
Importantly, the finance provider owns these assets until final payment is made. Because the assets stay off the borrower’s balance sheet, leasing finance is tax efficient. On top, it improves cash flow as lower payments spread across a period of time. Unlike with an overdraft, however, borrowers cannot withdraw the facilities, although they can make early repayments.
Key Asset Finance Solutions
To acquire vehicles, machinery, equipment and other hard assets, hire purchase may be most suitable.
During the rental period businesses pay the full cost of the asset, including interest.
Since the lease rent is based on the difference between the asset’s original purchase price and its residual value businesses pay a reduced rent.
Sale and Lease Back
If you already own an asset and want to release capital sell it to an asset finance provider and lease it back.
Whether hire purchase, finance lease or operating lease, asset finance
- provides you immediate use of the asset without paying for it all at once;
- frees up working capital for business growth;
- opens up another credit line separate from bank loans and overdraft facilities;
- works with lease contracts structured for the length of time you require use of the asset;
- usually also works for business owners with adverse credit histories;
- allows businesses to offset payments against corporation tax;
- protects against obsolescence and depreciation of owned assets;
Underwriting and Costs of Asset Finance Solutions
Although asset finance deals are secured against an asset, lending criteria still take the financial health of a business into account. Some lenders accept both hard and soft assets. And some only deal with hard assets, which have a higher resale value. Finally, the type and value of an asset count: Not every lender finances coffee machines, or airplanes.
Depending on the length of the agreement, lenders expect the borrower to make a deposit between 0 and 10%. The shorter the lease agreement, the lower the deposit.
To give you an overview of prices, tier 1 lenders such as Aldermore and Lloyds Bank offer flat rates between 2.5 and 4% and 5 to 8% APR. Tier 2 providers Close Brothers, Haydock Finance and others provide flat rates of 4.25 to 6% and 8 to 12% APR. Providers in tier 3 such as Armada and Kingsway Finance take a more flexible and personal approach at flat rates of 6 to 10% and 12 to 20% APR.
Asset Finance Brokers
As whole-of-market brokers CC Finance work with a select panel of more than 20 specialist asset finance companies. Because we liaise with lenders across all three tiers we are able to choose the lowest cost most appropriate deal for clients. Some lenders specialise in industries such as healthcare and manufacturing, whereas others focus on soft assets.
Because this type of finance is secured against an asset, most asset finance companies accept deals within 24 to 48 hours.
At CC Finance, we provide you with a fast, competitive quote to lease any capital equipment for the running of your business. This includes even ‘small ticket’ items from £5,000 in capital value.