Asset finance is an important tool for businesses of all sizes. It helps businesses acquire the equipment and technology they need without the hassle and delays associated with traditional financing methods.
By providing access to capital, asset finance can help businesses grow and succeed in today’s competitive marketplace. In this article, we’ll look at what asset finance is and the importance of financial planning and asset planning for businesses. Let’s get started!
Asset Finance and its Benefits for Businesses
Asset finance is a form of financing which allows customers to acquire assets such as vehicles, office equipment or machinery over time by making periodic payments. It can also be used to refinance existing assets or purchase new assets.
The main benefit of asset finance is that it allows businesses to spread out their costs over time rather than making a large upfront payment that could put a strain on their budgets. Furthermore, by freeing up cash flow, asset finance can help reduce operational costs in the long run.
Additionally, it enables businesses to upgrade their assets regularly so they can remain competitive in their industry without having to make costly upfront investments.
How Does Asset Finance Work?
The basic principle behind asset finance is simple – instead of paying a lump sum upfront for an item such as a car or a piece of machinery, customers pay off the purchase price via periodic installments over an agreed period of time.
This installment plan may include additional fees such as interest charges based on market rates at the time of purchase but generally will not require any down payment from the customer if structured correctly.
Generally speaking, these payments will be made directly from your business’ bank account either monthly or quarterly depending on the agreement between you and your lender.
The Different Types of Asset Finance Available
There are several types of asset financing available which vary according to your business needs and requirements. It could be for hard assets like cars i.e. auto loans or soft assets like IT development. Here are 4 types of asset finance available:
- Hire purchase agreements (HPA)
- Lease agreements (LA)
- Chattel mortgages (CM)
- Secured loans (SL)
Hire Purchase Agreements enable you to ‘hire’ an item until you have paid off its full cost. Chattel Mortgages involve taking out a loan against mortgaged assets. Lease Agreements allow you to rent equipment rather than buying outright.
And Secured Loans involve taking out a loan against collateral such as property or savings accounts which serve as security in case you default on repayments. Each type has its own advantages and disadvantages so it’s important that you research thoroughly before deciding what type would suit your business best.
The Importance of Financial and Asset Planning For Businesses
Asset planning involves creating strategies that ensure long-term success while managing risk appropriately with regards to investments into physical/material resources required by enterprises such as buildings, land, equipment etc.
Financial planning meanwhile entails setting goals related financial matters while considering current situation which includes debts obligations taxes etc.
Both these activities are essential when running any successful business endeavor because without them any significant investment decisions taken could result in negative consequences due lack of proper funding!
So make sure always review current finances versus future needs regularly to gain an accurate picture company’s fiscal health along with potential growth opportunities.
