What is an asset?
In business, an asset is an item of economic value owned by a company or individual, usually with the purpose of generating income or appreciation. Common assets include cash and cash equivalents, accounts receivable, inventory and supplies, buildings, land, and equipment. Assets can also be intangible such as copyrights, brand names and patents.
Investing in assets can help business owners increase their profits and grow. In general, businesses need to ensure that their total asset value remains positive over time to remain successful.
Asset finance is a business funding solution designed to help companies maintain their cash flow when purchasing business-critical assets. It involves obtaining finance to purchase the asset outright, rather than having to pay for it up front. Repayment terms are then typically structured over 1-7 years and can be paid monthly, quarterly or even annually.
With asset finance, businesses can get the equipment they need whilst preserving their cash reserves.
Overall, asset finance is an effective tool that helps business owners maintain financial stability as they make essential investments in their operations.
So, what are the different types of asset finance?
Leasing is a popular option among businesses due to its cost-effectiveness. It involves paying for an asset in instalments over an agreed period to a vendor or finance facility. During that time, you make regular payments on the equipment until it’s fully paid off, these are usually paid either monthly or quarterly. At the end of your agreement, you are usually given the option to either renew the lease agreement or purchase the asset outright.
An operating lease is an agreement that allows businesses to make regular payments for the use of equipment. This type of leasing does not involve ownership but does provide the business with access to the latest technology and equipment needed to run their operations at lower costs.
Operating leases are short-term agreements and generally have lower up-front fees along with no obligations or principal payments towards the equipment. Companies can benefit from this leasing arrangement by avoiding extra fees associated with ownership while being able to get the high performance they need quickly and conveniently.
Asset Refinancing/ Sale and Leaseback
Asset refinancing, AKA sale and leaseback, is a popular and versatile financial tool used by businesses of all sizes. It involves taking an asset that you have purchased within the last 6 months and selling it in exchange for cash. You then use that cash to pay off existing debt or fund future investments for your business.
Therefore, through equipment refinancing you can pay in affordable instalments to use the equipment that you need. This agreement works by your asset being leased back to you over an agreed period of time.
Through asset refinancing, businesses can free up cash flow and access new investments for growth. Read more about sale and leaseback here.
Hire purchase is another form of asset finance that involves purchasing an item on finance from a vendor or financial institution with an agreement to pay it off in instalments over an agreed-upon period of time. This type of financing also provides you with ownership rights over the item once it has been fully paid off, allowing you to use it as collateral if needed.
Invoice financing is another type of asset finance offered by many lenders today. This type of financing allows businesses to borrow against unpaid invoices owed by customers and suppliers. Invoice financing allows businesses to access short-term funds quickly in order to cover operational costs while waiting for payment from their customers or suppliers.
Why are more and more businesses using asset finance?
Asset finance presents business owners with a range of benefits. Firstly, it provides business owners with access to vital assets and equipment that may not be available to them through purchasing outright.
Not only does asset finance provide business owners with access to these assets at an affordable cost, but it also assists them in maintaining a healthy cash flow.
The fixed payment structures of asset finance allow business owners flexibility to keep monthly payments within their budget. And as a result, preserve capital for business expansion and other important operations.
In this way, asset finance proves beneficial for businesses of all kinds as it helps businesses grow and keeps cash flow running smoothly.
It is key to understand and evaluate all your options when it comes to asset finance. This will help ensure that you take out a finance agreement best suited to your business needs. However, should you need assistance in choosing the right agreement for you, please don’t hesitate to get in touch.
Our team of business finance experts will be able to source an agreement tailored to your requirements and provide you with a FREE no obligation quote. Give us a call today on 01494 611 456 or send an email to firstname.lastname@example.org.
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