Businesses tend to face financial challenges when growing and expanding into new markets, acquiring competitors, or building new manufacturing plants. Fortunately, businesses can lessen their financial burden and consequently, free up some more working capital by leveraging asset financing. With that in mind, here is a detailed look at business asset finance:
An Overview of Asset Financing
In simple terms, asset finance is a loan that allows a business to acquire fixed assets such as vehicles, machinery, or advanced tools that the business may otherwise be unable to purchase due to financial constraints. Asset financing is quite different from the traditional forms of business funding and it can make the difference between the success and failure of a business. As such, it has become increasingly popular in the UK as well as in other parts of the world. More specifically, according to the National Association of Commercial Finance Brokers (NAFCB), one in every three businesses in the UK uses asset financing. In some parts of the UK, equipment funding is relatively high. For example, 54% of businesses in Wales use this type of funding.
How to Access Asset Finance
Accessing asset funding is relatively easy, especially in comparison to other forms of business finance. All you have to do is visit or contact (via email, phone, or web chat) institutions that offer this financial service. If you do not know where to start, use search engines such as Google to point you in the right direction. Alternatively, you could contact NAFCB to help you find reliable and reputable asset financiers.
The Main Benefits of Using Asset Finance
Businesses that use equipment financing enjoy benefits such as:
• Capital retention
This type of funding allows businesses to retain available capital and use it for other purposes. For example, a company could use its capital to hire talented employees who could give it a competitive advantage over other industry players. This is especially true in the IT industry where companies go to great lengths to hire top talent.
• Ease of access
Accessing equipment financing in the UK is very easy. To start with, there are many institutions and equipment dealers offering this service. Statistics published by NAFCB show that there are more than 400 asset finance brokers in the UK. In addition, more than 5,000 equipment dealers spread all over the UK offer this service to businesses. At the same time, you do not have to jump through multiple hoops to access much-needed funding. Remember traditional financiers such as banks require loan applicants to fill and submit numerous forms, answer many questions, as well as spend months waiting for funds. This is counterproductive because you may receive funds when it is too late. For instance, consider a cloud computing company that wants to set up its own infrastructure (servers, firewalls, and hiring programmers) and seeks funding from a bank. Better-financed competitors could steal its clients if a loan takes too long to process and release. To avoid such an outcome, you should seek funding from equipment financiers.
• Improved revenue forecasting and budgeting
Funding tied to equipment makes it easy for a business to reliably budget and forecast expected revenues. A business that cannot forecast future revenues and profits could face significant difficulties. For instance, investors buy shares with the expectation of earning positive ROI. If a company cannot tell investors how much money it expects to earn in the next quarter or coming months, it could face massive sell-off of its shares. This could eventually lead to bankruptcy. The good news is companies that go for asset funding do not have to worry about such a scenario.
• Flexible payments terms
Repaying an asset loan is relatively hassle-free because financiers offer their clients flexible payment terms. For example, according to the NAFCP, a financier cannot stop or recall funding during the lifetime of a valid asset financing agreement. This means an entrepreneur can continue with operations without worrying about funding. In addition, NAFCP says this type of funding is largely secured on the asset a business wants to acquire. This aspect has one huge advantage: entrepreneurs do not have to put up extra collateral to access funds.
• Tax benefits
Some businesses, especially large corporations, go to great lengths to reduce their tax obligations. They hire tax consultants and register their businesses in tax-friendly countries to make their “tax footprints” as small as possible. The good news is you do not have to resort to such drastic measures. You can reduce your company’s annual tax payments by using equipment financing. For instance, you can deduct a given percentage of the cost of plant machinery or IT equipment from your taxable profits every year. Financial experts call this percentage capital allowances. However, this deduction applies to companies that acquire equipment under long funding leases (more than five years). Shorter leases (less than five years) do not fall under the “capital allowances” tax bracket. With this in mind, it is advisable to consult a tax or financial expert before entering into an equipment funding agreement.
• Transparent funding process
Traditional financial institutions are notorious for engaging in less than transparent funding practices. As a result, a business may meet all loan application requirements and still fail to get funding. At the same time, a bank may not even reveal the reason why one was denied a loan. If you have been a victim of these shenanigans, go for asset finance solutions. The entire financing process is transparent. To start with, the majority of financiers offering these services use real people to evaluate loan applications. Remember, many banks use computers algorithms to determine who qualifies or does not qualify to get a loan. The problem with algorithms is they cannot make objective judgments. Secondly, this type of business asset finance typically involves total clarity on charges and fees. As such, you would not necessarily have to through the fine print looking for hidden fees and commissions.
Whether you run a startup, SMB, or well-established large business, you will face financial difficulties at some point. These difficulties could be caused by expansion into new markets, mergers and acquisitions, or building of new factories. To keep your business afloat, you should seek asset finance UK. Benefits of taking this approach include capital retention, transparent funding process, improved revenue forecasting and budgeting, flexible payment terms, tax deductions, as well as easily accessible funds.