What is Asset Finance? Types of Asset Finance

If you’re looking to invest in new or used equipment for your business then a loan can help make it more affordable. We take a look at the different types of asset financing and leasing and when you should use them for your business.

What is asset finance?

Asset finance is a type of business finance that enables you to confidently acquire the business assets you need to grow and operate both efficiently and effectively within your sector, by spreading the cost of purchase. There are different types of asset finance depending on your business and situation, which we will dive further into, in this article.

Asset finance can be used to acquire a wide range of business assets, tailored to your specific industry needs. This flexibility makes asset finance an appealing choice for many types of businesses. Here are some of the key categories of assets you can finance:

Vehicles: cars, vans, commercial vehicles and transport fleets for your business.

• Machinery: from industrial machinery to specialized equipment like 3D printers, farming equipment and manufacturing tools.
• Technology: IT hardware, software, and tech services, including installations, upgrades and system maintenance.
• Healthcare Equipment: medical devices, diagnostics tools and healthcare infrastructure.
• Marine and Aviation: yachts, powerboats, commercial vessels, private jets and business aircraft.
• Renewable Energy: biomass boilers, solar panels and other green technologies.

These assets can be new or second-hand, providing flexibility to businesses of all sizes. It can also be used to release cash that may be tied up in assets already owned, by means of asset refinancing.

Wholly or largely secured on the assets being financed, business asset finance gives you the flexibility to fund your equipment purchases while also avoiding paying out a lump sum.

With this type of asset finance it means you can spread the cost over a period of time to protect your cash flow and free up working capital for other areas of your business.

How does asset finance work?

Asset Finance is straightforward in how it works. Typically, White Oak UK will pay for the asset upfront, so you don’t have to and then you’ll pay a recurring fee over an agreed term to use the asset.

It’s broadly appreciated that uncertainty is the arch enemy of development. And if there’s one thing to be sure about, it’s that Brexit has pushed the level of uncertainty to an absolute peak.

Whilst access to finance from traditional banks may become more difficult and more painful to obtain, that is not the case with providers like White Oak UK.

Types of asset finance

There are three principal types of asset finance to consider, including lease and hire purchase agreements, as well as additional solutions required for specialist purposes.

Type	What is it?
1. Asset Finance Leasing	An asset finance leasing agreement where you can rent the asset over an agreed period, up to a maximum term of 5 years. During the life of the asset finance leasing agreement the full value of the asset appears on your balance sheet, and an element of the rental treated as a business expense and passed through the profit and loss account. You are responsible for maintaining and insuring the asset during the life of the agreement. We maintain ownership until final payment. At the end of the lease you have 3 options: Purchase the asset via a third party for an agreed fee; Return the asset to us (there will be a cost incurred to you for this); or Enter a secondary lease period over an agreed amount of time
2. Hire Purchase	Hire Purchase (HP) allows you to benefit from the immediate use of the asset over an agreed term, while repaying the cost in instalments. HP enables you to acquire the equipment you need by White Oak UK purchasing the equipment on your behalf. During the life of the agreement the full value of the asset appears on your balance sheet and an element of the rental treated as a business expense and passed through the profit and loss account. We maintain ownership until the final payment is made and at the end of the agreement you can choose to keep the asset or return it to us.
3. Specialist Purposes	There are several specialist purposes for asset finance for specific equipment such as Green Energy (e.g. biomass boiler finance), farming input loans and vehicle leasing. When looking for asset finance, it is important to choose a provider with expertise in these sectors.

In addition to business asset finance, occasions arise where you only require a short term repayment period. In these situations, a working capital loan product is needed. Working capital business loans can be tailored to meet your requirements with terms from 3 to 12 months.

Why use asset finance and leasing?

Put simply, you should use asset finance as part of any process you have for purchasing equipment.

By considering the benefits and capabilities asset finance and leasing early, you can demonstrate how it can support your purchasing plans and it can also influence the specification of equipment you ultimately purchase.

Buyers will inevitably seek out a solution that provides value at a price they are willing to pay; by using asset finance to spread the cost you may be able to afford a higher specification of equipment than you first thought.

Considering asset finance and leasing early in the buying cycle delivers greater control by breaking down the total cost of purchase into manageable payments. Doing this increases your ability to tailor a solution to meet your business’s individual requirements.

Benefits of asset finance

There are a number of benefits of asset finance, from the flexibility and convenience it can give to your business through to helping cash flow and tax benefits:

Flexible

• Used to fund almost any asset
• Payment terms and profiles can be tailored to meet cash flow
• Allows for equipment upgrades
• Can include hardware, software, training, installation and support services
• Can be adapted to the business’s financial circumstances, for example in the tourism sector,
  where work is very seasonal, payment patterns can be set up to reflect this

Easier Budgeting

• Makes budgeting and forecasting easy with fixed payments
• Payments are not subject to fluctuations in interest rates
• The real cost of acquisition reduces as inflation rises
• Fixed payments allow improved cash flow management
• This is never more important than in an uncertain economic climate

Tax Efficient

• Leasing is Tax deductible, reducing the net cost of obtaining the equipment

Maximise Your Budget

• Get what you want, when you want it, spreading the cost to make your budget work harder

Conserve Working Capital

• Helps reduce initial outlay
• Allows your capital to be invested in other areas

Convenient

• Easily manages supplier payment terms
• Payments made via Direct Debit, removing the need to settle invoices
• Less risky than an outright purchase, as the lender takes on the risks of ownership

What can you use asset finance for?

We don’t choose the assets we fund – you do. We provide simple solutions tailored to you needs. We’ve provided asset finance to a variety of different industries such as a ninja assault course to an 85-year-old coffee roasting machine.

More traditional examples of equipment we can fund with our solutions:

• Air Conditioning
• Amusement & Gaming
• Audio Visual
• Barware
• Beauty Equipment
• Beverage
• Buffet Display
• Cooking
• Epos & Cash Handling
• Fabrication & Storage
• Food Handling
• Food Preparation
• Food Service
• Furniture, Fixtures & Fittings
• Gym Equipment
• Information Technology
• Laundry
• Lighting
• Refrigeration Refurbishments
• Security Systems
• Soft Play
• Software
• Telecommunications
• Vending
• Waste Management

Potential risks of asset finance

While asset finance offers many benefits, it is essential to consider the potential risks involved. Since asset finance is secured against the asset itself, failure to make regular payments could result in the asset being repossessed. Here are some risks to be aware of:

• Repossession Risk: If your business is unable to make payments, the lender has the right to repossess the asset. As this could disrupt your operations, it is important to ensure you can meet the repayment terms.
• Interest Rates: Although payments are fixed, businesses should be mindful of the total interest cost over the term of the agreement. In some cases, the long-term interest rate can make financing more expensive than an upfront purchase.
• Obligations to Maintain the Asset: For some forms of finance, like leases, you are responsible for the maintenance and insurance of the asset, adding to the overall cost of ownership.
• Asset Depreciation: If the asset depreciates faster than expected, your business may be left with an asset worth less than what is owed at the end of the finance agreement.

It is crucial to carefully evaluate your business’s financial health and consult with your asset finance provider to ensure that you fully understand the risks involved.

What next?

At White Oak UK, we’ve cut the red tape from our business to offer quick, simple and straightforward asset finance solutions, so you can work more efficiently and effectively.

Talk to us today on 01244 527 300 or contact us to discuss your options.