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Why Are Business Owners Attracted To Asset Finance?

Asset finance is a great way for businesses to use current assets such as a real estate property or machinery and equipment of a business to secure funding. Alternatively, asset finance can be used to purchase new machinery or equipment. Any equity in these assets can be used to secure a short-term business loan. The purpose of the loan does not need to be for the purchase of equipment but can be for any business purpose such as cash flow or business expansion.

One-third of the business owners have utilized business asset finances to provide funding to their businesses. According to a survey, 29% of companies used asset funding, among which 20% have bought new plant or equipment with it. A large number of businesses used it to obtain working capital as it is a quick and easy option of funding.

What Is Asset Funding?

Examples of Asset include

  • Hire Purchase
  • Finance Lease
  • Equipment Lease
  • Short term business funding
  • Asset Refinance

What makes hire purchase and finance leasing different is that hire purchase allows you to have the asset at the end of the settlement. But a finance lease lets you borrow the property for a certain period.

Example of Asset Finance

To know what asset finance is practically, here is an example.

Suppose you own a manufacturing company. You might need new pieces of machinery to increase production to fulfill market demand. You require the machines immediately for your company, but you do not have enough money to buy the assets.

After examining thoroughly, you choose to hire. The advantage of this purpose is that it does not ask for a deposit, the financing can provide the full purchase price.

How Does Asset Funding Work?

Asset finance, can also be known as bridging finance, they operate quite differently than other finances. Bridging finance requires equity in real estate asset to secure the funding.

Bridging finance can allow you to borrow up to 75% of the value of the property including your current mortgage.

Increasing Popularity

Recently, as business owners have realized the advantages of asset financing, it is becoming popular with time. Their popularity is because they are a quick and easy option to secure funding for your business.

Advantages of Hire Purchase

There are several benefits of hire purchase-including

  • Saves cash flow without using it to buy new assets in an emergency.
  • Your business can procure up to date machinery assets.
  • The interest rate is remarkably lower than the interest rates of bank loans or overdrafts.
  • Set monthly repayments to assist with managing cash flow

Advantages of Finance Lease

Finance leases provide many advantages to businesses such as

  • No need to use cash flow to purchase new assets immediately.
  • Depreciation benefits with tax
  • Let you forecast the exact revenue flow as the monthly payments options are fixed.
  • Tax benefits as it will get referred to as a trading expense.

Advantages of Asset Refinance

  • Allows obtaining working capital quickly.
  • The finance amount of asset refinance can be utilized to invest in business growth.
  • Let you predict proper cash flow because of the fixed monthly payback system.
  • Save your business from an emergency lack of cash flow situation.

Who Can Obtain Asset Finance?

Asset finances are primarily for every sort of business which includes SMEs. It allows acquiring a high-value item and provides support to the business’s development. To obtain asset finance for a business you need to have a registered NZBN number

Period of Asset Finance

Business owners can obtain asset financing from one to seven years. In some cases, if the asset is of higher value, then the time can get extended. The asset financing lender gives a specific period to pay the asset price back, including the interest amount to the business owner.

Another significant factor determining the period for which the lender will provide the financing is how long you will use the asset and how fast you have to pay the money back to the lender. The finance borrower must provide some proof to ensure they can make the payments easily.

Bottom Line

Asset finances are the short-term business finances that every company may require at some point in time. It assists your business in reaching the peak of success. So if your business needs assets to grow the manufacturing rate, asset finances are the superior to consider.

Benefits And Uses of Bridging Finance

With different financial alternatives to select from, sometimes it becomes trickier for the business owners to identify which financial option will be perfect for their company’s benefit. But nowadays, one financial product is gaining rapid popularity, which is bridging finance. It is a type of short-term financing loan for business purposes. The primary purpose of applying for a bridging loan is provide a short term solutions for businesses and efficiently support the business whilst they look for a longer term permanent financial solution.

In the past bridging loans were only approved for property purchase, developments, and auction buying when you would use the loan to purchase another property whilst you waited for the existing house to sell.  However, now a borrower can utilize bridging loan finance for other business-related purposes, which might not be necessarily related to the property purchase. Due to the short term nature of the bridging loans, the interest rate is a bit higher, but borrowers find it convenient due to the flexible terms and conditions.

Benefits of Bridging Finance

It is time to check out the undeniable advantages of bridging loans which are as follows.

  • Faster to arrange

When you seek help from a bank or any other financial institution for a large amount of money, they either take months to get approved and require extensive financial information. But in the case of bridging business loans in New Zealand, the business owner can get the funds needed within two days of approval and the funds go straight into their bank accounts.

  • Submit Any Property as Collateral

You can get bridging funding against your flat, shop, commercial unit, farm, development land, house, office, or vacant land. A borrower can also use properties already for sale, which makes the process much easier also.

  • Non-Standard  Property

Most of the traditional banks offer loans against a standard residential property. Bridging loan lenders, however, can use any type of property to secure the funding.

  • Business Purpose

Bridging loans can be used for any worthwhile business purpose, they are also perfect for start up businesses who do not have the financial information to support a traditional bank loan.

  • Flexible criteria for Lending

Numerous bridging loan providers offer funding as per their criteria. Usually, the lenders do not get concerned about the credit history, income, and affordability. They only want to know the property value that the borrower will use as security and what is currently owing on the property to ensure there is sufficient equity available.

  • Submit numerous properties as security

You can submit more than one property to a  for bridging finance as collateral and security. It can be a first or second mortgage or an amalgamation of both. The more equity that you can utilise in property the higher the Bridging loan that can be approved.

  • Put the Borrower in a Strong Position to Negotiate a Property

If you have the support of bridging finance, you can negotiate with the seller of a property with the confidence of knowing that funding is approved and available.

Uses of Bridging Finance

A borrower can use bridging business loans in New Zealand for different reasons, which are as follows.

  • Certainty when purchasing property

When the buying of a property in a company name gets funded from the proceeds of another property sale, sometimes it cannot get completed even before or after the purchase. In this case short-term funding is necessary for bridging the gap for the purchase. After the deal gets complete, the borrower repays the bridging funds from the sale of the property.

  • Refinancing

Bridging loans can also replace the current funding, which is approaching its term-end. It is one of the best alternatives for extending the loan term or releasing additional funds.

  • Solve the problem of cash flow for a short period

The problems of cash flow can reduce productivity while running a company. For instance, a traditional bank may consider an overdraft facility, which will take time. The business owners will run late in paying the wages and invoices. But with the help of bridging finance, there is no such problem as this type of loan gets approved with ease and solves the cash flow problem within the company.

End Thought

It is now clear that although bridging funding was previously primarily used for property purchase, it also assists in various other purposes. It is now widely used for an worthwhile business purpose providing you have sufficient equity in real estate.

Business Bridging Loans Help Small Business Success

Bridging finance has been in the market since the early 1960s. Back then it was only offered as a way to buy and sell property and bridge the gap between when one property was being purchased and another one sold.

However things have changed, bridging finance has evolved and has been made available to business owners across all types of industries, such as automotive, medical and dental, even in accounting and law. Nowadays, even small business lenders already offer business bridging loans to customers who would prefer them to other types of business loans available.

So how do business bridging loans work for the business owner?

A business bridging loan is a type of short-term business loan that helps “bridge” the funding needed by the business owner until he or she finds a more permanent source of funding.

What are some of the instances when your business might need bridging finance?

  1. The business needs to meet a strict deadline in order not to miss a big business opportunity. This opportunity could come in the form of the acquisition of new equipment that was already signed for but enough funding from the business available for the purchase from cash flow.
  2. There may also be important business obligations that need to be settled and met so as not to disrupt business operations. Examples could be payment of employees’ salaries, payment of payables due to creditors or suppliers, or an immediate need to repair a piece of equipment that is vital in the business operations.

A business bridging loan is normally secured against a fixed asset which is usually the real property owned by the business or the business owner. Interest rates for business bridging loans are also higher compared to other loans and are capitalised and paid when the loan reaches its maturity. What is good about availing of a business bridging loan is that it is quick and easy to apply for it.

So why would a small business want to avail of a business bridging loan if there will be a bigger impact on the financial capabilities of a business due to high-interest rates?

Business bridging loans are quick and easy to apply for. Online facilities have been made available to business owners to lodge their loan applications and with very minimal documentary requirements, approval is easy and the loan proceeds are transferred to your bank account within a day.

Another good thing about business bridging loans for business owners is the fact that credit ratings and scores are not the sole basis of assessing a loan application. With most banks and lending institutions, they investigate and create hits on your credit score ratings and whenever this happens, the credit score readily goes down further. Loans are not usually granted when the credit score takes one hit after the other in the hopes of being granted a loan for the business. A business owner or borrower may be able to get a business bridging loan even when his or her credit rating is not so great. The collateral security will supplement any unfavourable credit score of the business or the business owner.

There are two kinds of business bridging loans that can help the business owner in filling  immediate financial gaps in its business operations. Bridging business loans are those that have a specific end date that is agreed between the small business lender and the business. It could be one month to six months or even up to a full year, depending on the terms and conditions of the small business lender who granted the loan.

Business bridging loans are not meant to be structured over a long-term repayment schedules because it is  likely that the monthly interest rates for the duration of the business bridging loan can not be sustained for a long period of time. They are designed to allow access to cash quickly for the business but to be repaid within a very short period of time, this is known as an exit strategy. The exit can be from sale of an asset or a refinance as an example.

Bridging finance will buy the business owner some time to look for a more permanent source of funding. Although there may be lending companies that are flexible enough to extend repayment terms, the business owner should be mindful of the impact to business’s cash flow if extended for too long. Business bridging loans are available for the business’s interim cash needs, and this should not be the main source of the business operations’ funding in the long term.

Taking out  business bridging loans are best suited for those cash flow interruptions that are merely temporary and are short-term in nature. The business owner should still plan and effectively strategize the financial needs of the business and make necessary adjustments to the business operations after the business bridging loan has been repaid. As mentioned earlier, business bridging loans buy the business owner time to look for more permanent sources of funding.

When used wisely, business bridging loans are extremely helpful to the business owner and its business operations. Aside from it being one of the quickest ways to address the business’s financial concerns, small business lenders will not require financials of your business and that of the business owner. Small business lenders have made it more convenient for business owners to do quick fixes on the business’s short-term cash flow concerns by making business bridging loans available for their use. Business owners  are fortunate to have these business bridging loans available to them, and they should always be considered for their business’s immediate funding needs.

HomeSec Business Loans New Zealand

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Auckland, 1010, New Zealand
​09 888 6550
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​ HomeSec Business Finance Limited
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