Asset finance is a way of funding assets within a business, typically vehicles, machinery or equipment, but it can be used to fund almost anything on a balance sheet. These facilities can also be used to pay for an additional (new or used) asset or to release cash from an asset a business already owns.
Types of Asset Finance
Businesses could use a Hire Purchase agreement to buy an asset, paying in instalments to spread the up-front cost. Typically a 10% deposit and VAT will need to be paid immediately and the rest paid over an agreed number of years.
When using a Hire Purchase facility, assets will show on a business’s balance sheet.
Lease financing arrangements allow a business to rent an asset - paying a rental amount that covers the cost of that asset and interest.
At the end of the lease period, a business will be able to continue to rent the asset or return it to the lease company.
Operating leases enable a business to rent an asset over a short to medium term, without the business ever owning the asset. They allow payments to be offset against profit and are typically used for assets that need regular maintenance. Operating leases also make it easier to replace and upgrade assets.
A way for businesses to release cash tied up in assets it already owns. These assets should have a good resale value and will not be currently financed.