Asset Finance Options for Business

Whether you’re a startup or an established business, understanding these asset finance options can help you make informed decisions and grow your business.

Asset finance provides a viable solution by allowing businesses to obtain the necessary assets while spreading the cost over time. 

Running a successful business often requires access to essential assets, such as equipment, vehicles, or technology. However, the upfront costs of acquiring these assets can be a significant financial burden, especially for small and medium-sized enterprises (SMEs). 

Here is a summary of five asset finance options and how they work.

1. Hire Purchase
2. Finance Lease
3. Operating Lease
4. Equipment leasing
5. Asset Refinancing
6. What Can You Finance With Asset Finance
7. Criteria for Assets To Be Financed
8. The Benefits of Using A Finance Broker

1. Hire Purchase

Hire Purchase is a standard asset finance option that allows you to acquire assets while spreading the cost over a fixed term.

You select the desired asset, and the finance provider purchases it on your behalf. Your company then makes regular instalment payments over the agreed-upon period. Once all payments, including any interest, are complete, ownership of the asset transfers to the business.

Sometimes, you may be charged a ‘Purchase Option Fee’ before taking ownership of the asset.

With HP, you are responsible for the asset’s maintenance and insurance.

4. Finance Lease

A finance lease is where a leasing company will purchase an asset on your behalf, and your business will essentially hire it from the finance company. The leasing company charges your business a fixed monthly fee for using the asset while they retain ownership of that asset. 

For the agreed period, you are responsible for the maintenance and repair of the equipment, and it will appear on your company’s balance sheets.

At the end of the lease period, there are a few different options. 

1. Extend the rental period and keep using the equipment.
2. Return the equipment to the lender, as they are the owners.
3. Sell the asset on behalf of the lender. In certain circumstances, you may share in the proceeds from the sale.

3. Operating Lease

An operating lease is another flexible funding facility that works similarly to a finance lease. It is a short-term option, meaning the overall costs are lower than a finance lease, but the monthly payments are higher than other finance options.

It is an excellent option if your business needs equipment for a set period. Because it is a short-term rental, you can also upgrade your equipment regularly.

During the agreement term, the finance company is responsible for the asset’s maintenance, taking the worry away from you.

2. Equipment Leasing

Equipment leasing works similarly to financing leases. However, you can own the asset at the end of the rental period. 

At the end of the rental period, there are a couple of options for your business: 

1. Extend the rental period and keep using the equipment.
2. Return the equipment to the lender, as they are the owners.
3. Upgrade the asset.
4. Pay the balloon payment and own the asset outright. 

A great benefit of equipment leasing is that the leasing firm is responsible for the maintenance of the asset. 

5. Asset Refinancing

Asset refinancing is a valuable solution for unlocking the capital in your existing assets and boosting your cash flow. By leveraging your assets as collateral, you can access a line of credit and raise funds for your business.

Asset refinancing involves selling an asset your business owns to a finance company. Subsequently, the same asset is leased back to your business, enabling you to continue utilising it while receiving a lump sum from the sale. Throughout the repayment period, your company benefits from using the asset in exchange for a monthly fee. Once the repayment period concludes, the finance company becomes the asset’s rightful owner. At this point, you can either continue renting the asset, part ways with it or repurchase it for a pre-agreed sum.

Find out how much you could finance using our free online asset finance calculator →

Eligibility Criteria When Applying for Asset Finance

Eligibility criteria for accessing asset finance options can vary depending on the finance provider and the specific type of asset finance. However, here are some common factors that finance providers may consider when assessing eligibility:

• Business Stability: Finance providers typically prefer businesses that have been operating for a certain period, such as at least six months or one year. Here is how to get finance as a new business →
• Creditworthiness: Finance providers assess the business’s creditworthiness and its owners or directors. This involves evaluating credit history, existing debts, and the ability to repay the finance.
• Financial Statements: Businesses may be required to provide financial statements, such as profit and loss statements, balance sheets, and cash flow statements. These documents help finance providers assess the financial health and performance of the business.
• Business Plan: For new businesses or those seeking significant finance amounts, a comprehensive business plan outlining the purpose of the finance, growth projections, and repayment strategies may be required.
• Collateral: Some asset finance options, such as Hire Purchase or Asset Refinancing, may require collateral to secure the finance. Collateral can include the assets being financed or other business assets.

It’s important to note that the specific eligibility criteria may vary among finance providers, and it’s advisable to inquire directly with them to understand their requirements.

What Can You Finance With Asset Finance

Regarding what can be financed with asset finance, a wide range of business assets can be considered for financing. Here are some examples:

1. Machinery and Equipment: Businesses can finance various machinery and equipment necessary for their operations. This includes manufacturing equipment, medical devices, construction machinery, IT infrastructure, and office equipment.
2. Vehicles: Asset finance can be used to finance different types of vehicles, such as cars, vans, trucks, delivery vehicles, commercial vehicles, and specialised vehicles like refrigerated trucks or construction vehicles.
3. Technology and Software: Businesses can finance technology assets such as computers, servers, software, telecommunications systems, and other digital infrastructure required for their operations.
4. Furniture and Fixtures: Asset finance can cover the cost of office furniture, fixtures, fittings, and other physical assets needed to set up or upgrade business premises.
5. Renewable Energy Systems: With the increasing focus on sustainability, businesses can also finance renewable energy systems like solar panels or wind turbines to reduce energy costs and carbon footprint.

It’s important to note that the availability of asset finance options for specific assets may vary among finance providers. Different finance providers may have other preferences or specialisations regarding the assets they finance. 

Therefore, it’s advisable to discuss the asset requirements with the finance provider and inquire about their specific financing options for those assets.

Criteria for Assets To Be Financed

While asset finance allows businesses to finance various types of assets, there may be restrictions on the types of assets you can finance. These restrictions can vary depending on the finance provider and the specific asset finance option. 

Here are a few factors to consider:

• Acceptable Asset Types: Finance providers typically list acceptable assets they are willing to finance. These can include machinery, vehicles, technology equipment, furniture, fixtures, and other tangible assets. However, each finance provider may have their own specific criteria regarding the assets they finance.
• Condition of Assets: Finance providers may have guidelines regarding the condition of the assets. They may prefer financing new or slightly used assets in good working condition. Assets that are outdated, in poor condition, or have high maintenance requirements may be less likely to be eligible for financing.
• Asset Value: Finance providers consider the asset’s value when determining the finance amount. Some finance providers may have minimum or maximum asset value requirements. They may also consider the depreciation rate of the asset over the finance term.
• Asset Ownership: In some cases, the finance provider may require proof of ownership or a clear title for the asset being financed. This ensures that the business has the legal right to use the asset as collateral or as part of the finance agreement.
• Industry-Specific Assets: Certain industries have specific assets that are integral to their operations. For example, healthcare businesses may require medical equipment, while construction companies may need specialised machinery. Finance providers specialising in specific industries may have expertise in financing those industry-specific assets.

Overall, asset finance offers flexibility in financing various types of assets, but it’s important to ensure that the asset you intend to finance aligns with the guidelines and requirements of the finance provider.

The Benefits of Using A Finance Broker

As you can tell from the points above, lenders consider several factors when financing assets. For that reason, it can be a time-consuming and complicated process shopping around trying to find the right lender to offer your business the right finance solution. 

Overall, utilising the expertise of a finance broker can provide businesses with access to a broader range of finance options, save time and effort, and ensure that they secure the most suitable and competitive asset finance solution for their needs.

Find out how much you could finance using our free online asset finance calculator →

An asset finance broker has relationships with multiple lenders, all with different lending criteria. When you use a broker, you submit your application once to them, and they do the leg work in matching you with the right lender that will provide the right finance solution. 

The best part is that with a broker like Dorsia Finance, you aren’t charged any fees for this service. 

Contact us if you want to take advantage of the benefits of using an asset finance broker.
info@dorsiafinance.co.uk | 01522 420 420