The rise and rise of asset finance
A growing number of businesses are using asset finance to fund investment and purchases.
Starting out in business, most companies have big ambitions to attract clients, secure contracts and grow, yet many have reservations about using finance to support their expansion, develop operations and improve output.
In particular, asset finance is often associated with big firms which run large operations. However, this type of funding can be used by businesses of all sizes, from start-ups to a FTSE listed company. A lender is less interested in the size of a firm, but rather its ability to repay a loan – from £1,000 to upgrade IT equipment, to £1m to improve a production line, asset finance is a great way to fund all types of equipment, machinery and vehicles
Should I buy or finance equipment for my business?
Another common misconception is that it’s best to avoid taking on a business loan and that finance is a last resort for companies that are struggling with debt. In fact, most firms that use asset finance have the ability to make the purchase outright, yet asset finance protects their cash reserves which, in turn, enables them to maintain a healthy cashflow. As the old adage goes, cash is king, and having funds to pay staff and suppliers, maintain good stock levels and be able to respond to unexpected opportunities is invaluable in business, regardless of sector. With an agreed interest rate and fixed term, you will be able to budget and plan with confidence.
For example, an upgrade to machinery could provide a competitive advantage and enable a business to win a new contract, yet paying for this outright might overstretch a company and prevent it from meeting client orders. Asset finance could enable you to scale your operations and increase productivity while spreading payments over the longer term and protecting cash in hand.
How many businesses use asset finance?
According to a report published by the Finance & Leasing Association (FLA) in March 2023, use of asset finance increased by eight per cent year-on-year in January 2023, the ninth consecutive month of growth. Chief among this was the use of asset finance for commercial vehicle and new business car finance, which increased by nine per cent and 57 per cent respectively as supply shortages eased.
Commenting on the rise in businesses using asset finance as a funding choice, Geraldine Kilkelly, director of research and chief economist at the FLA, said: “The latest figures suggest that demand for asset finance from SMEs remained robust, increasing by 13 per cent compared with January 2022. The asset finance industry funds as much as 40 per cent of investment in machinery, equipment and vehicles by businesses across the UK.”
How can I find the best asset finance for my business?
Interestingly, alongside the growth of asset finance, the FLA study reported that, year-on-year, in January 2023 there was a 17 per cent increase in companies using a broker to find asset finance to suit their needs.
Working with a commercial finance broker enables a company to find the best funding, sometimes with a specialist lender which has a good understanding of their sector, saving them money and reducing the time and effort of searching and organising an asset finance application.
Additionally, working with a commercial finance broker may identify new funding opportunities – for example, it may be possible to refinance existing assets, using them as collateral to leverage additional lending.
Finally, a business can often claim allowances when it invests in assets to upgrade or grow its operations. With HMRC Capital Allowances, this could help to reduce your tax bill and it’s worth talking to your accountant to understand how this might help your business.
