Last week we introduced you to Revolving Credit and the tips for securing a great deal.
This week we are looking at Asset Finance. Asset Finance is more common within the manufacturing or printing industries; but as business needs and companies have advanced so too have Asset Finance lenders.
Some of the industries which Asset Finance are now suitable for include, Soft play/Children’s centres, Hospitality, Construction, Retail, Beauty and Hire, as well as your more traditional industries.
So, what is Asset finance? Well, it is a tri party deal in which a business (debtor), a supplier and a funder (creditor) are all involved in a purchase; which can be a regulated or unregulated finance proposition.
It can be anything from one vehicle to a fleet of vehicles, machinery equipment, laptops/computers, counters, full refits and even swings & slides and gaming machines; anything your business needs to purchase, from a supplier. What’s more interesting is that now there are also funders available to finance against website builds for companies or for soft assets such as carpets, light fittings etc. as part of the total overhaul or setup of a business.
What are the benefits? Well, for a start:
• You don’t have to find the full amount of the purchase price
• You can relive business cash flow while still upgrading your equipment or vehicles
• You can buy equipment from outside of the country and still manage your cash flow
• You can effectively get a start-up business operational if it relies on a premises or physical equipment to trade i.e. construction, restaurant, soft play centre
• The asset and liability will typically not show on your filed accounts but will show as a cost in the notes from the accountant
However, like all finance there are some things to note before making your decision, and some tips to ensuring you are eligible for the facility and secure it at a great rate.
First the things to note;
• There can be a request for Personal Guarantees as well as a securing debenture against the business
• If you are one of the UK’s small SME’s or starting up there is often a requirement that one if not all directors has to be a homeowner. This type of facility is never secured on your own home, but it does make it a more attractive lend, certainly on high depreciating assets
• The cost of finance can typically be directly linked to the value of the asset and its secondary or depreciative value
• Until all the finance is paid and a transfer of title is organised, you or your business will not own the asset
What can you do to strengthen your application;
• Make sure your managements and filed accounts are up to date, regardless of being a sole trader or ltd status. The lender will want to make sure you can afford the payments
• If you’re a start-up, a business plan and cash flow forecast will be a great addition to your application. Not always needed, but will help
• If you or your directors are not a home owner, you will need to find a third party who is to guarantor against the facility
• Bank statements…always a must and typically you will need 6 months, but some lenders can ask for 3
• Check the value of your purchased equipment, make sure you are buying at the right price and it is going to be a worthwhile investment, you could be paying this facility anywhere between 24 and 60 months
Overall Asset Finance is a great tool to have in the arsenal of facilities, there will typically be document/arrangement fees and there will always be a transfer of title or final purchase payment which can be 1% of the original facility value. Most lenders will also lend up 100% of the equipment’s value but providing a deposit will always reduce your total interest payable.
Keep posted for next weeks instalment where we will look at Stock Finance….