Asset finance is a type of lending that allows a company to borrow money for the purchase or lease of an asset. The asset can be tangible, such as property, machinery, or equipment, and intangible assets like patents, trademarks, and copyrights. They are also known as non-recourse loans because they offer collateral in the form of the asset being financed but not other personal guarantees from the borrower. This means if you default on your loan payments then only the asset will be used as repayment against your debt obligation.
The world has changed drastically over recent years with technological advancements coming thick and fast – this opens up new avenues for businesses to explore when it comes to financing their operations. Asset finance offers companies much more flexibility than traditional forms of finance.
The asset finance market has grown significantly over the past two decades and is expected to grow further as more companies realize its benefits. Asset finance is good for businesses because it can lead to lower interest rates, shorter loan terms, and longer repayment periods.
The benefits of using asset finance
Asset finance helps companies to maintain and grow their business operations. Companies can use it in a number of ways:
- To buy new equipment, machinery or buildings for the company’s needs
- As part of an agreement with another company where they take over your asset repayments on condition that you provide them with some form of service
- If you’d like to expand your business by opening locations in new markets or buy the latest assets overseas, then consider using asset finance.
The flexibility offered through this unique type of finance is perfect for many businesses because it allows companies to get hold of funds quickly without having to give up equity in the process. In addition, if a borrower fails to meet payments, only the asset will be used as repayment against your debt obligation.
How to find a reputable lender
In order to find a reputable lender, it is important that you do your research. Here are some of the things to look out for when assessing whether or not an asset finance company will offer good value:
- Are they regulated? Companies should be registered with either Financial Conduct Authority (FCA) if in England and Wales.
- How much does their borrowing cost on average versus how much money can I borrow through them? The higher this ratio, the better deal you’re getting. A typical benchmark would be about one percent per month.
- What other charges do they impose like establishment fees and broker fees? These could represent hidden costs that companies only reveal after signing up; assess these before making any commitment.
Types of assets you can use for asset finance
Any asset that has a resale value can be financed through an asset finance company. The main difference is that you are not paying for the entire cost of the asset upfront; instead it’s paid off over time in regular installments from your monthly income. These payments will vary depending on how much money you borrow and what type of assets they’re financing but typically represent between one to two percent per month which means most people won’t feel any significant financial hardship as long as repayments are managed responsibly. You’ll also need some form of collateral like property or a vehicle to secure the funds.
Things to consider before borrowing money through an asset loan
Think about what you need the asset for. If it’s not necessary, think twice before taking the risk of borrowing money to buy it. It may be better to spend a little more time saving up first and then just purchase with your own cash later on when you’re ready – this will also spare you any extra interest payments if you don’t take out an asset finance loan.
If possible, try to get advice from someone who has experience in borrowing through these types of loans so they can help guide your decision based on their personal experiences.
Find out how much the repayments are going to be because that could have a major impact on whether or not it makes sense financially (for instance, monthly repayments should account for no more than 35-40% of your after-tax income).
You will likely need to be a homeowner with equity in that property and have the ability to borrow more than 80% LVR or purchase an investment asset.
Ultimately it comes down to how comfortable you are taking on these types of loans. If this is something that’s not new for you then there should be no reason why you shouldn’t explore asset finance – but if it falls outside of your comfort zone, think about whether borrowing is really necessary at all before making any decisions.
Asset finance stock photo by Cagkan Sayin/Shutterstock
