Choosing between asset finance and a traditional business loan is simple, it comes down to a business’s cash‑flow needs, collateral availability and desired flexibility.
The following provides a bit more detail to help with the considerations.
Asset Finance
Pros
- Purchase essential equipment (vehicles, machinery, technology, etc) without draining cash flow.
- Assets themselves act as collateral, lowering barriers to the approval process.
- Predictable repayments can be aligned with the useful life of the asset.
Cons
- Funding is strictly tied to the asset; the funds cannot be repurposed.
- Total cost (covering both interest and fees) may be higher than conventional loans.
- Finance may require residual or balloon payments to be incurred at the end of the term.
Business Loans (both secured and unsecured)
Pros
- Greater flexibility in how funds are used, typical scenarios include expansion, staffing, marketing and diversification.
- Fixed interest rates and repayment schedules make budgeting easier.
- Ideal for refinancing or consolidating existing debt.
Cons
- Secured loans require the guarantee of collateral (e.g. property or personal guarantee).
- Unsecured loans can carry higher interest rates and stricter eligibility criteria.
- On occasions a business may require robust credit history and sound financials to qualify.
Choosing the right route
When funding business growth, the right type of finance depends on your specific needs:
- Use asset finance when you need to invest in tangible assets like equipment or vehicles. It allows you to acquire these without tying up working capital, preserving your cash reserves for other operational needs. This also helps protect your business loan capacity by keeping credit lines open for working capital or unexpected expenses.
- Choose business loans when you require flexible funding for general growth, operations, or working capital. Loans provide broader financial support but can limit your borrowing capacity if used to purchase fixed assets.
Our recommendation
Avoid using a business loan for asset purchases when asset finance is more appropriate. For example, using £75K of a £100K business loan to buy equipment could restrict cash flow and limit access to further funds. Asset finance helps maintain liquidity and borrowing power.
We have recently facilitated 2 asset finance deals for a vegetable wholesaler operating in Covent Garden who needed a refrigerator unit and a public house in the Cotswolds who needed new kitchen equipment. By selecting asset finance, they were able to purchase valuable business assets without compromising their day-to-day cash flow.
If you are looking for business finance or would like to discuss some options, please call our team on 01993 706403 or e-mail enquiries@ngifinance.co.uk.
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