Asset finance is a form of loan whose main aim is to purchase equipment or upgrade already existing assets. It is mainly used by companies to overcome the challenge of having to raise new capital for purchasing new assets. Asset finance can be used for purchasing cars, plant machinery and office equipment among others. You might be wondering why these companies would not just go for options like hire purchase or finance leases. The reason why most companies prefer asset finance is that it is a secured loan. In other words, the loan is provided under an understanding that the assets purchased with the loan money are put up as collateral for the said loan. The best thing about asset finance is that the loan cannot be recalled while the agreement still stands. For you to understand asset finance, and how it differs from other loans; it is vital that we look at its benefits.
- Asset finance makes it possible for businesses to purchase the assets they need without touching their cash flow. In other words, the money used for purchasing the much needed assets does not directly come out of the business’s pocket, thus protecting its cash flow.
- Asset finance makes it possible for businesses to only lease the assets they need, especially if the assets are only needed for a short time. This way, businesses do not need to purchase assets that they only need to use for a limited time.
- Asset finance also makes it possible for equipment or assets to be purchased both domestically and internationally. If the required assets are only available on the international market, asset finance will make such a purchase possible.
- If the business needs to upgrade an already existing asset, asset finance eliminates the need to sell such asset at a second hand price. In other words, instead of selling your old assets at a low price, asset financing makes it possible for you to upgrade such assets to the required level.
There are a number of asset financing options that you can choose, for example, hire purchase, finance lease, asset refinance, import leasing and vendor finance among others. However, before choosing any one of these options, it is recommended that you look at their benefits and short comings.