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When to use Asset Finance
Specialist Asset finance can be an excellent solution for companies struggling to survive in the current financial turmoil that is threatening the very existence of many businesses throughout the UK. But it should be used very judiciously.
Businesses go under because they run out of cash. Asset finance can be an excellent tool in fighting back against cash-flow problems – particularly when these problems are temporary in nature. Asset finance can help smooth out fluctuations in cash-flow and ensure survivability in the current downturn. It allows companies to buy time.
Now may well be the perfect time to consider this form of finance if you are in urgent need of cash-flow and have assets you can leverage. There are already some signs of the green-shoots of economic recovery, so it’s all about survivability until things look a little brighter.
So what is asset finance and how do you access it?
It is a form of finance that allows a business the use of an asset without tying up its capital. It can be used by a company needing new equipment, or in trying to release the value in capital items already owned – to provide cash-flow or additional working capital.
Asset finance is essentially a form of lending against any assets that a business has. These can include stock, plant, equipment or property, for example.
Ownership of the asset being financed can sometimes stay with the company raising the finance – or can transfer to the finance company which in turn grants right of use for a specified period. In the latter case, the company raising finance then makes regular lease payments on the equipment.
Finance can be provided for most types of business asset for periods between six months and seven years and for amounts ranging from £5,000 to £100 million.
The details of lease agreements to provide asset finance vary, but fall into one of two basic categories:
1. With a direct lease, a company agrees the purchase of an asset from a manufacturer, distributor or existing owner and then arranges for the finance company to buy it. The lessor (i.e. the finance company) then leases the asset back to the company in need of the asset.
2. With sale & leaseback agreements, the asset already owned by a business is sold to a finance company which then rents it back to the lessee (i.e. the company seeking funding).
In a similar way to invoice financing, asset based lending allows you to release much needed funding to help with immediate cash-flow issues.
Asset finance can be an excellent tool when used correctly – though it is essential to seek expert business finance advice.