What is asset finance?
Asset finance allows a business to acquire an asset new to its organisation via leasing or hire purchase.
In this guide you’ll learn about the main types of asset finance, the pros and cons of using asset finance, and how to go about applying for an asset finance product.
As with all financial products, it’s a good idea to seek independent, specialist advice before deciding which product is right for your business and circumstances.
What is Asset finance?
Asset finance allows a business to acquire business-critical assets, replace aging equipment, or expand current operations without putting additional pressure on cashflow or needing to raise a significant amount of working capital before purchase.
The product works by allowing a business to use assets on its balance sheet as collateral to fund a purchase.
Asset finance is a versatile financial product, variations of which can be used to fund purchases of everything from machines and manufacturing plant to office and IT equipment.
What is the difference between asset finance and asset refinancing?
It’s important to understand the distinction between asset finance and a product called asset refinancing.
Asset finance allows you to acquire or lease an asset without the need for a big upfront payment.
On the other hand, asset refinance lets you unlock the cash value of an asset that you already own.
Essentially, you can use the asset as collateral and secure a business loan from a lender.
For more information, read our guide on asset refinancing.
Is my business eligible for asset finance?
If your business is capable of meeting its financial commitments, asset-based financing could be a viable option.
This holds true irrespective of your business structure - whether you're a sole trader, involved in a partnership, operating a limited company, or even launching a new startup.
There's a diverse range of asset-based finance options and lenders available to cater to different needs.
However, determining the most suitable type of asset finance, identifying the lowest interest rates, and finding the perfect lender for your specific business circumstances can be a labour-intensive and time-consuming process.
Therefore it’s a good idea to seek independent, specialist financial advice before deciding on the right type of finance to apply for.
How do I choose an asset finance lender?
There are specialist asset finance funders in the UK, as well as funders – including high-street banks – who offer leasing and hire purchase.
It’s a good idea to look into different funders, assessing their reputation, the fine print of their terms and conditions, their customer service, and how flexible they are.
Next, check if they have expertise in financing the type of equipment you need as any potential lender will need to know your specific equipment needs inside out.
Don't be shy about shopping around and comparing multiple lenders.
This will give you a clear picture and help you make a decision that fits your business's financial needs and goals like a glove.
Engaging with funders early on and having open discussions can save you heaps of time and effort further down the line.
It’s also worth remembering that you don't have to do this alone.
Consider using a broker to help you identify a lender that ticks all your boxes and don't forget to look into potential suppliers too.
Remember, the more prepared you are, the smoother your asset finance application process will be.
How can I learn more about Asset Finance?
For more information on asset finance, download the Finance & Leasing Association’s guide: Why use asset finance.
The FLA has also produce a toolkit for SMEs to help them when they are applying for finance.
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Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.
Introducing Business Finance Week
From 6-10 November the British Business Bank, along with several partners from across the UK, will host Business Finance Week 2023.
With a whole host of nationwide and regional in-person events, webinars and more, Business Finance Week helps smaller businesses learn about the different finance options available to them to support their individual needs.