The term asset finance describes a broad range of business funding solutions that are tied to physical assets such as machinery, equipment and vehicles. It also covers financing options for technology and office-based equipment such as 3D printers. It’s not uncommon for SMEs to use this form of financing as it can be cheaper than paying outright for high-cost items. The key advantage of using asset finance is that the cost of the finance can be spread and payments are often fixed, making it easier for budget planning. This type of financing is often more flexible than a bank loan as it is tailored to the needs of the specific business.
The main risk with asset finance lenders is that if the company fails to make repayments, the lender can reclaim the item that has been used as security. It is therefore important to carefully consider what your business is able to afford and how much you can repay in the long run when looking into this form of financing. As with all financial products, it’s important to read the fine print and ensure that there are no hidden fees or clauses that could catch you by surprise. It’s not unusual for lenders to add in additional charges if you make late or non-payments and this can increase your overall costs.
It’s worth mentioning that the majority of asset finance companies are specialist in the types of equipment they fund and as such, it is unlikely that you will find one that can provide funds for every type of equipment your business may need. As with other forms of financing, the amount you’re able to borrow will depend on what you are buying and how much it is likely to cost.
When choosing an asset finance provider, it is a good idea to get to know them as well as possible. Ask them for an in-depth explanation of the process, how they assess your suitability and creditworthiness and what their minimum requirements are. If they are unable to offer you the funds you need, it might be worth exploring other routes of financing such as factoring or invoice finance.
In summary, asset finance is a great way to channel investment into your business while still maintaining healthy cash flow. However, it is crucial to understand what you are getting into and to choose a provider that offers an honest assessment of your suitability and will not be easily deceived by false information or omissions in an application. This is especially important as financial agreements love to be wrapped up in cosy layers of financial jargon. It’s a common mistake that businesses can fall into, so take the time to carefully review your options and always be vigilant. Doing your homework will ultimately save you money in the long run. It can also reduce the risk of costly errors. By avoiding these costly mistakes, you’ll be able to benefit from the flexibility that asset finance can offer your business.