When you start a business, you may not have too many options when it comes to funding or borrowing money. Every new business takes time to build up their credit and lenders are well versed on the risks of lending to new businesses. But soon enough those first few years have been negotiated and your thoughts turn to business growth.
One beneficial way of doing this is to use asset-based lending and asset finance as part of your financing options to raise money against the business assets you have built up in your first few years of trading.
Most businesses don’t own too many assets when they start out, but through leasing, hiring, operational purchases and growing your sales ledger it can be surprising how many assets you have acquired.
1. Using Asset Finance For Start-Ups
If you are a start-up or a new business then you need to be in a position to afford to buy the equipment or the machinery needed to operate. Asset finance helps by offering packages such as hire purchase or leasing where purchase payments are broken down into affordable monthly sums, which don’t eat hungrily into your cash flow. It’s a tactic that most start-ups will utilise because the security of the finance is inherently tied to the asset acquired.
2. Take Advantage of the Assets Your Business Owns
You can use asset finance to purchase or borrow against any ‘fixed asset’ you own. This means you can use your computers, equipment, vehicles, technology, plant, machinery and furniture. Basically, anything that can be held as security by the finance provider against the loan – if you default on the agreement and fail to keep up with payments. Obviously, this means that asset finance doesn’t include stock, although you can use the benefits of asset-based lending to purchase more stock and fulfil more customer orders fuelling growth and boosting cash flow.
3. Using Asset-Based Lending When Factoring is Limited
Sometimes, despite being one of the most convenient ways in which to access cash from your unpaid invoices, the process of invoice finance can still limit your options to improve business growth. Delayed payments and seasonally slow sales can affect your cash flow. You may also be in a tricky situation where you are making enough to generate more sales but need extra funding in order to make them. Using asset finance to help can make that extra difference meaning more sales and enabling the growth your company needs. Using one of your assets you can secure a loan against it – just like a traditional bank loan – and then pay it back with interest.
4. The 6 Top Sectors Using Asset-Based Lending
According to the ABFA (Asset Based Finance Association) there are six industries in which asset-based finance proves pivotal in developing growth and expansion opportunities:
- Construction
- Transport
- Manufacturing
- Distribution
- Services
- Retail
If you are in one of these then it makes sense to fully explore the finance opportunities they represent and looking into the ways in which using hire purchase can help boost cash flow or taking advantage of asset-based lending to enable your assets to generate additional funding.
5. Using Asset Finance For Short Term Growth
If you are looking for a quick decision or need to take advantage of industry opportunities, then asset finance, like invoice finance or asset-based lending are usually forms of finance agreed much quicker than others, like traditional unsecured loans. New facilities can be set up in just a few days and for factoring and invoice finance, you can start releasing cash flow immediately. For asset-based loans finance providers are often specialists in your field as well so can provide you with a lot more assistance than just looking at your balance sheet. They will look at your wider industry and the opportunities within it when basing their lending limits.
6. How Asset Finance Can Save on Tax
Using asset finance to lease machinery, equipment or vehicles can also be a handy tax-saving procedure. All your lease payments can be offset against your profits as they are seen as business expenses. Because buying outright means you can only write down depreciation and loan interest, this can often be less than your lease payments. Remember VAT is payable on the rental, not the purchase price, which can also help cash flow – all the while acknowledging that you can reclaim this anyway.
The key advantage of asset finance is having access to increased financing. It can also be cheaper than both invoice finance and traditional secured or unsecured loans.
If you are looking to free up more cash to help expand or grow your company, call Funding Guru to talk through the funding options available.
