Asset finance is a form of business funding that enables the leasing of items such as machinery, equipment and vehicles. Rather than having to outright purchase, a business can pay a monthly fee over an agreed term and at the end of the term they can either return the item or outright purchase it.
If we relate this to a manufacturing business, they will have identified that by launching a new product into the market they can increase their revenue by 30%. However, they need a specialist machine to manufacture the product. Due to cash limitations, they cannot afford to outright purchase the machine. Instead, by arranging an asset finance deal, they can take advantage of installing the machine immediately and just pay a small monthly fee to cover the cost. This way cashflow is not affected but the business can start to manufacture the new product and introduce into the market.
As a business asset is being purchased there are often a number of excellent tax-deductible savings the company can benefit from. It also is a key driver for increasing business growth opportunities. Quite often the business asset will quickly pay for itself due to the increase in revenue.
Another key benefit of asset finance is it has a diverse number of agreements available meaning it can appeal to all business types. These include
- Hire purchase – you pay a deposit upfront followed by lower monthly payments. At the end of the term, you can either pay off the balance or return the asset.
- Finance lease – the lender purchases the equipment on behalf of the business and then leases it out for an agreed period. The lender will be responsible for the maintenance and upkeep of the asset.
- Equipment lease – very similar to finance lease except at the end of the term a business can choose to extend it, upgrade, outright purchase or simply hand it back.
- Operating lease – this solution is used when a business has no intention of buying the asset as they only need for a short period of time. The cost of the lease is based on the value of the asset.
Many businesses fail to recognise the true diversity of asset finance. It has a plethora of uses and can be deployed across all sectors. Here at NGI Finance, we have worked on a large number of different deals involving asset finance. Here are some of the more unusual deals which we have been involved in:
Deal 1 – working with a specialist catering company we facilitated the purchase of some bespoke coffee machines imported directly from Italy.
Deal 2 – a referral into the Global franchise chain of KFC (Kentucky Fried Chicken) enabled us to work with a restaurant in a prime location and install a customer lift.
Deal 3 – to help with the transport needs of a business we facilitated a deal which enabled them to purchase a chinook helicopter.
Deal 4 – in the agriculture sector we helped a working farm to purchase new livestock to increase their cattle number by over 50%.
Deal 5 – the craft ale market has been vibrant for several years now and we have been able to assist businesses with several asset finance deals for distillery equipment.
Deal 6 – finally who knew that a deal worth £500k would enable the purchase of a specialist tea-bag machine. It was certainly an exciting project to be involved in.
If you have any questions or would like to understand more about asset finance, please call us on 01993 706403 or e-mail enquiries@ngifinance.co.uk.
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