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What is asset finance and how can it help your SME

The first concern of any business is balancing costs and expenses alongside retention and profit – in actual fact, mere survival. Obviously, the aim is to have more of the latter and less of the former: at the very least, you want them to even out in a way that allows you at least some profit. There are many ways to help achieve this, but one important way is to consider asset finance, due to every business needing assets in the first place to at all survive.

Asset finance

In order for you to even function, a business requires assets. Assets are usually considered to be those things like equipment, cars, etc., that allow you to do the business at all. However, when starting a business, obtaining the best assets – which allows you to do the best business – can be difficult, if not impossible. After all, you’ve put a lot of money down already into the business; now you need even more to merely make it function.

Asset finance is an umbrella term about financial solutions to obtain assets without incurring too much of a penalty, if done and chosen correctly. One financial assistance site notes:

“Many businesses don’t have enough available cash to consider an outright purchase, making asset finance a necessity. Even if you can afford it, you want to put your money to good use and investing cash in assets leaves you with less working capital to finance operations or explore new growth opportunities. The flexibility of asset finance allows you to align repayments to suit your cash flow and you may be able to claim tax deductions.”

Thus, there is a way to work on obtaining the desired assets while also keeping your costs lower.

Options

But, as we noted, asset finance is an umbrella term.

For example, you get the option of leasing the asset. This is, as the name suggests, paying to use the item. At no point, of course, do you own it. There is usually no deposit, but that depends; further you are tied to a certain amount of time, since this means the lender obtains a profit from their leasing service.

The obvious advantage is that you can acquire new items that help your services quickly. You can even sometimes have the option to own the product, if you have enough money – though that’s not the point of leasing itself.

There is also “hire purchase”, which means:

“Giving you a fixed or variable rate, with this option you generally pay the VAT and an initial deposit at the start – followed by a simple, structured repayment profile designed to facilitate cash flow.”

Thus, at the end you own the asset entirely, but manage your payment in a way that makes the least impact on your cashflow.

Impact on business

As a growing business, you need to be doing all you can to keep costs low. And asset finance, and its different options and perspectives, as well as the option to acquire said assets, makes for an important consideration. Of course, if you had the money in the first place, it would be best to purchase – but that can be an option for later, when your business has grown and the assets are in place to secure a financially viable future.