Asset finance is a form of funding where businesses can acquire capital equipment without draining their cash flow.
Most businesses do not have piles of cash to purchase a major item of equipment, and obtaining additional working capital through traditional sources can be difficult and time consuming.
Essentially the finance is raised on the value of the asset itself spread over a period of time taking into account the working life of the item and its residual value.
This finance is not restricted to larger companies but all businesses including sole traders can take advantage. Funding is not restricted to new items and cash can be raised on existing plant and machinery.
The asset does not have to be heavy plant or machinery and there are funders who will lend on smaller items and where a business is refurbishing.
Asset finance comes in various forms:
Hire Purchase: Fixed monthly repayments so that the item is owned at the end of the term.
Sale and HP Back: Purchased at and agreed value financed back over an agreed period with payments matching the income stream generated by the asset.
Leasing: Here, ownership is with the funder, and who will look to recover the cost (plus interest) over the rental period at the end of which the choices are a new lease; sell or return the item.
Business assets also include the value of your stock and the value of outstanding sales where payment has not yet been received. More specific finance applies to these.