Asset Finance

What is Asset Finance?

Asset finance allows a business to use and potentially acquire an asset, such as machinery, vehicles or equipment and spread the cost over time.

Leasing and hire purchase are two popular types of Asset Finance. Leasing allows businesses to use the asset for an agreed period without owning it, while hire purchase provides the opportunity to eventually own the asset once all payments have been completed.

How does Asset Finance work?

Asset finance is a versatile financial product, variations of which can be used to fund purchases of everything from machines and manufacturing plants to office and IT equipment.

Leasing and hire purchase are the most popular forms of Asset Finance and they are designed to support cash flow management and provide access to essential assets:

• Leasing functions as a rental agreement. Businesses can use an asset over a fixed or minimum term by making regular rental payments, which may include an initial advanced payment. At the end of the lease term, the business may have the option to continue renting, return the asset, or possibly replace it with newer equipment.
• Hire purchase is a credit agreement where a business agrees to buy an asset over an agreed timeframe. After paying an initial deposit, the business hires the asset from the funder and makes fixed payments throughout the agreement period. Once the agreement ends, the business will typically take ownership of the asset by making a final payment to complete the purchase.

Additional types of Asset Finance include operating lease, contract hire and business contract purchase.

What are the benefits?

There are several potential benefits for a business when it comes to using Asset Finance.

For Leasing and hire purchase the benefits are:

• strong approval chances: typically, application success rates for businesses are good when compared to other forms of finance
• speed: Leasing and Hire purchase agreements are known for their quick processing times. For common types of equipment, such as vehicles, the entire process can often be completed in just a few days
• highly flexible: both Hire purchase and Leasing are versatile, and can be used to acquire a wide variety of assets
• cash flow positive: unlike outright purchasing, these arrangements require much smaller upfront payments, making it easier for businesses to access essential assets without depleting their financial reserves.
• fixed monthly payments associated with leasing and hire purchase agreements provide businesses with a predictable cost structure.

What are the potential drawbacks?

Like all finance types, there are some potential disadvantages to Asset Finance, including:

• credit report implications: when applying for asset finance, providers will carry out credit checks to assess your financial reliability. It’s important to note that credit checks may influence your credit report, as they are recorded and could potentially affect your credit score
• charges: for businesses looking to own an asset at the end of their agreement, there may be additional fees to pay
• loss of asset: defaulting on payments could result in the asset being recovered by the funder
• depreciation: most assets depreciate in value over time. This means that by the time a hire purchase  agreement concludes, the asset could be worth less than the total amount you’ve paid for it through the agreement.

How do I access leasing & hire purchase:

In the UK, Asset Finance is offered by specialist providers, as well as more general lenders, including high-street banks.

You can search and compare leasing and hire purchase providers online.

It might be a good idea to use our checklist to ensure you’re ready to apply.