Q&A: Asset finance


Asset financeSteve Richardson of Funding Options answers key questions about asset finance and how it could benefit your business

What is 'asset finance'?

Finance used to purchase equipment for business use. Any equipment or asset that is intrinsic to your business can be financed in this way.

Who provides asset finance and are there different types of asset finance?

A range of banks and private lenders provide various asset finance products. There are two main types of asset finance: "hard asset" being plant equipment and vehicles; and "soft asset" being assets with little second-hand value, such as IT.

Can it really be helpful to newer and smaller firms like mine?

Asset finance is largely used by new companies that lack the cashflow to get the equipment they need. With minimum deal sizes of around £5,000, it's an ideal solution for many small or new businesses. It could be that a new company needs a small phone system, some EPOS or maybe even a new butcher who needs to buy a bacon slicer.

What can I buy with asset finance?

Anything that's used by your business to trade providing it's removable. The assets that surprise people tend to be IT, phone systems, catering equipment, software, gym equipment, medical equipment – even office furniture and shelving. It's far easier to ask what you can't finance, because the list is much smaller.

What are the key advantages of asset finance?

The main one is cost-efficiency; you pay for the goods over their working life and if you take a lease rental (as opposed to hire purchase) there are also large tax savings to be made, since the payments are considered operating cost and are allowable against your corporation tax. Repayments and lease periods are fixed, to allow for better budgeting and unlike an overdraft they can't be withdrawn on demand. A lease does not affect other bank credit lines either. Most importantly – you can keep your cash in your business.

Why not simply use that cash to buy the asset?

Because that's the worst option. Your cashflow is the lifeblood of your business, and can be used to deal with the any unforeseen issues that arise. I've heard of many instances where a business has used its cash to buy assets it could have spread the cost on, only to hit unforeseen problems, such as losing a major customer. They've had to go cap in hand to the bank for money – only to be turned down.

What advice should I seek before taking out asset finance?

It's often a good idea to chat to your accountant, because they may be able to advise on your specific tax situation. Also seek advice from someone who understands the wealth of asset finance options available in the current market. A good intermediary will identify the right solution for your business based on your specific needs.