Asset finance allows you to purchase an asset with no upfront costs by putting up that asset as collateral. It’s an affordable and effective choice for businesses of any size looking to grow.
In this quick guide, we explore the specifics of asset finance including types, rates, benefits and how to apply.
It’s recommended that you seek independent specialist advice before choosing any financial product. So book your free no-obligation consultation with Kane Financial Services today to find out more about financing options in Northern Ireland and the UK.
What is asset finance?
Raising money to purchase critical assets, replace old equipment or expand your services is a challenge for businesses of any size and industry.
But asset finance allows you to purchase and use assets immediately with little or no upfront cost. Instead, you pay in small, manageable payments over a fixed term. You also get full use of the asset during this time.
In this arrangement, either the asset you wish to purchase or another agreed asset on your balance sheet acts as collateral on your loan. If you’re unable to pay, your lender instead takes ownership of that asset. That means you don’t need to risk bankruptcy or financial turmoil if something goes wrong.
There are two types of assets that you can fund through asset finance:
- Hard assets: Tangible objects such as vehicles, machinery and equipment
- Soft assets: Intangible property such as copyrights, patents and trademarks
As with many types of business finance, asset finance carries associated fees and interest payments. But the opportunity to grow your business or expand your operations immediately typically leads to a net profit.
What kinds of businesses can apply for asset finance?
Almost any business can apply for and benefit from asset finance. At Kane Financial Services, we often help clients find market-leading rates and terms for:
- Agricultural finance
- Aviation finance
- Catering finance
- CCTV & security finance
- Construction equipment finance
- Education finance
- Energy finance
- Gym & leisure finance
- Health & beauty finance
- Industrial equipment finance
- IT equipment finance
- Laundry equipment finance
- Leisure finance
- Marine finance
- Office equipment finance
- Transport finance
Can a small business or startup get asset finance?
Yes, they can. In fact, asset finance can be essential for small businesses or startups to get the vehicles, equipment, and IT hardware and software they need to operate.
Funding purchases through asset finance lets you invest your working capital to run or grow other areas of your business. Or you could use it to maintain a healthy financial barrier for emergencies or unexpected expenses.
Types of asset finance
- Finance leasing (also called capital leasing) is when a leasing firm buys a business asset on your behalf and rents it out to you. You make payments until you cover the cost of the asset and the interest fees. Then you can extend your rental period, return the equipment or sell the asset on behalf of the finance provider.
- Equipment leasing is very similar to finance leasing. But at the end of your contract, you also have the option to take ownership of the equipment.
- Operating leasing is again a lot like finance leasing. But it’s typically used for specialist plant machinery or equipment that you only want for a limited time or don’t want to own outright.
- Contract hire (also called vehicle asset finance) is strictly for vehicles. A provider finds and maintains a fleet of vehicles on your behalf, and you make regular payments over an agreed term. Once that term expires, the provider is responsible for disposing of the vehicles.
- Hire purchase lets you buy assets on credit. You pay in instalments and take ownership of the asset once all payments are made.
- Asset refinance involves putting up existing assets as collateral against a loan. Once you repay the principal, fees and interest, the asset returns to you.
- Asset-based lending (also called sale and hire purchase, or sale and lease-back) is another type of asset refinance. You sell a hard asset then lease it back from the finance provider to repay the lump sum in small increments. You can still use the asset during the repayment period.
What are the rates for asset finance?
The specific rates for your asset finance product vary depending on your deal.
Most asset finance loans are backed by a hard asset. So their interest rates tend to be lower than other forms of business funding.
If you have an excellent credit score, your asset finance rates can be as low as 3%. But if your credit is poor, you could expect to pay up to 50% interest.
For asset refinance loans, the interest rate can range from 2%-15% depending on the assets you offer as security.
Benefits of asset finance
- Small upfront costs: The upfront costs of asset finance are usually small or non-existent. You don’t need to work hard raising working capital. Instead, you can acquire the asset immediately and start using it to earn more money.
- Small regular payments: Similarly, the cost of the asset you buy is spread out over the agreed payment term. This makes it easier to manage your cash flow and frees up working capital to invest elsewhere.
- Fewer responsibilities: If you purchase an asset outright, you’re responsible for its upkeep and maintenance. But under asset finance, these are typically handled by the lender. In many cases, they’ll even replace it for you if it develops a fault during the loan period.
- Less risk: The asset you purchase is typically used as collateral. So you don’t need to put your existing assets at risk. And even if you do, you’re protected against bankruptcy from defaulting on your loan.
- Affordable: Compared to other types of business finance, asset finance often carries a lower interest rate, especially if you have a good credit rating.
How to apply for asset finance
Applying for asset finance is simple and straightforward.
First, you need to figure out what assets you want to buy or rent, and which existing assets you could put up as collateral. Then you need to find a lender who specialises in the type of asset finance you want.
When looking for a lender, you could speak with high street banks or niche providers who service your specific industry. But for the best rates and terms, it’s better to get in touch with an independent asset finance broker. That’s because market-leading asset finance deals tend to be exclusively available to the broker community.
At Kane Financial Services, we have over 35 years’ experience brokering superior asset finance deals for businesses of all sizes across Northern Ireland and the UK. Apply for asset finance online today or contact us for a free no-obligation consultation to discuss the best business finance options for you.