What is Asset Finance?
The finance industry is one of those industries that likes using acronyms and developing their own terminology, which ordinary everyday businessmen and women might not fully understand. Asset Finance is one of those terms which is liberally thrown about, and some business owners might be afraid to ask for a definition through fear of looking incompetent, naive, or being embarrassed. This blog aims to explain the terminology in everyday language so that the reader can make informed decisions that ultimately should be able to drive their business forward.
In the most basic accountancy terms, an asset is an item of value that your business owns, creates, or benefits from. This can range from a relatively inexpensive printer to a JCB or other costly piece of equipment. Sometimes a company may be growing rapidly, but that growth is being restricted because they do not have the financial means to buy the extra equipment needed to sustain or maximise that momentum.
This is where asset finance is used as it offers a business the opportunity to purchase any required assets and then spread the cost over a more extended period of time. Essentially a lender or finance company pays for the equipment, which the company will then repay in equal installments over an agreed period.
What Are The Different Types of Asset Finance?
There is a range of different types of asset finance that broadly follow the model described above, but with minor variations. AW Capital can explain the various different options available to you to help you make an informed decision and choose the best product for your individual needs. Some of the options include
Hire Purchase
This option is almost identical to a Hire Purchase agreement you may have used as an individual. The finance company purchases the piece of equipment and essentially retains ownership of it throughout the agreement. Upon payment of the final installment, the company can choose to make an additional payment and assume ownership of the property or return the equipment to the finance company.
Finance Lease
Unlike the Hire Purchase model above, there is no option to purchase the equipment at the end of the agreement. In essence, the business is only leasing the piece of equipment over an agreed period of time. The contract’s length can vary, but it usually is designed to ensure that the finance company has received the full cost of the equipment before the agreement comes to an end.
Asset Refinancing
There are two different types of asset refinancing. The simplest option is to use your companies assets as security for a loan. The other option involves selling an asset the company owns to a finance company for an agreed price. The business then leases back that asset from the finance company, essentially repaying the loan sum.
For many business owners, asset finance can be a scary and somewhat intimidating proposition, but it is a relatively simple concept and is an excellent option to finance and grow your business. If you are contemplating utilising the benefits of asset finance, then AW Capital can help guide you every step of the way. We are registered with the financial conduct authority and have helped hundreds of companies organise their asset financing.
