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.