Asset finance allows companies to collect funds for the purchase of assets they might need to make their businesses run successfully. Paying a huge amount of cash at one time for buying assets can be really hard to manage.
It would significantly affect the company’s working capital. With asset finance, one can raise the capital to buy assets and the money can be returned to the finance company through regular payments over an agreed period.
Major Types of Asset Finance For Small Businesses
They can use asset finance for purchasing new and used cars, coaches, light and heavy commercial vehicles, plant machinery, and office equipment. With the help of asset finance solutions, you can buy equipment for your business without spending a large sum in one go.
It saves you from the trouble of arranging a large amount of capital for buying much-needed assets.
This typical credit facility is readily available where the financier allows the hirer the right to possess and use an asset in return for regular payments. Here, the hirer first finds the asset he wants and negotiates the purchase price with the supplier.
After the hirer pays a deposit of 10-20% to the finance company, he can take the asset directly from the supplier. After they made a balloon payment at the end of the term, the title of the goods is transferred to the hirer.
Lease Purchase is often confused with a regular lease. It is similar to a hire purchase agreement with the only difference being that in a Lease Purchase the hirer needs to pay a deposit of 10-15% as a multiple of the repayments. The payment for the remaining balance and interest is done in installments.
A Lease Purchase agreement is based on either a fixed or variable rate. Including a balloon can reduce the monthly installment.
In Contract Hire, they make a rental agreement between the supplier and the customer. Here the customer hires the asset for a fixed period and after the completion of the period, he returns the asset to the supplying dealer. With contract hire, the customer gets the chance to use the new asset without the risks associated with ownership.
With a finance lease, one can get up to 100% finance for the acquisition of plant equipment required in a business. Here, the ownership of the goods remains with the finance company, which rents the goods to the hirer over a predetermined period. Initially, the hirer needs to pay the documentation fee and an initial payment of multiple rentals. They paid the remaining cost of the asset back over the agreed time period.
Here an agreement is made to rent the asset for business purposes for a predetermined period. At the expiry of the agreed lease, the asset is returned to the financier or an offer to purchase it for a mutually agreed price is made. One major line of difference between an operating lease and a finance lease is that the primary rental period for an operating lease does not cover all the capital costs and the hire charges.
Looking at these various types of asset finance, it would not be tough to choose one for buying expensive equipment without forking out a huge sum of money at one go. But it is essential to understand asset finance and its various types properly before applying for it.
There are many finance companies that can help one to get competitive and tailored asset financial solutions to suit one’s personal and business requirements. It is advisable to take professional help to avoid any sort of complications in the future. One can take help from any reputed asset finance-based consulting company to get a better deal for one’s business.