Asset finance is a type of financing that businesses use to acquire assets which they need for their operations. There are many different types of asset finance, and it can be difficult to know what the best one is for your business. In this blog post, we will explore some of the most common types of asset finance and help you decide on which one would work best for your needs.
There are five types of asset finance. Your selection depends on what you plan to buy, how long you plan to keep it, and how you prefer to pay the asset off.
1. Hire Purchase
Hire Purchase is a way to buy something without actually paying for it. It’s a good way to purchase expensive things when you don’t have the cash upfront but need the items right away. You can pay in installments, and they’ll give you full ownership of the item after your final payment.
For example: if you need a truck to transport some goods immediately, you can hire purchase a truck, and pay for it over 12 months. After that period is up, the item will be yours
2. Equipment Lease
Leasing is a great way to get the equipment you need for your business. It also lets you pay monthly and gets your company up and running quickly, which is especially important if you’re just getting started. Leasing will also allow you to rent a new machine, truck, or other equipment without needing to buy it outright. However, you need to bear in mind that after the leasing period is over you need to make a choice. You can either return the equipment, extend the lease, upgrade to newer equipment, or buy the equipment. Leasing can last anywhere from six months up to three years.
For example: if you wanted to lease a new truck you could do it for fairly affordable monthly payments. After the leasing period is over you can either return it, extend the lease on the same truck, upgrade to a newer model, or buy the truck.
3. Finance Lease
Finance Lease is an option for businesses that allows them to get capital equipment without having to pay the full cash value of it immediately. You can receive financing with a low down payment and monthly payments are lower than what you would pay if you were leasing. A finance lease is a type of leasing agreement that requires the tenant to pay for all maintenance, repair, and upkeep fees. This type of lease enables you to borrow an asset and use it for a predetermined amount of time. After that period has elapsed, you do not have the option to purchase the asset and are required to return it.
For example: if you need to purchase a truck for your business but don’t want to spend the full cost upfront, you could finance it. You would pay a low down payment and make monthly payments until the term of your contract is over. However, at this point, you are not able to buy the asset.
4. Operating Lease
An operating lease is a type of long-term rental that allows the owner to use an asset while paying only for its operating expenses. This may include things like fuel, insurance, and maintenance. You only pay for the asset during use, rather than its full value like you would with an equipment lease.
For example: Hiring a truck for your business can be advantageous because you will only have to pay for fuel and maintenance while using it.
5. Asset Refinance
Asset refinance is essentially loaning money based on the assets you already own. It is often done to lower the interest rate or improve your credit score. These assets can be properties, equipment, vehicles, etc. Good thing is that even though you used an asset to loan further funds, you can still use that asset and benefit from it.
For example: If you are thinking of purchasing the additional truck, but cannot afford it with your current finances, refinance the current one instead. You will now have two trucks for use, allowing you to increase your business further at a faster rate.
Conclusion: As you have now learned, asset financing is a great way to facilitate business start-ups. It can be used to buy equipment or vehicles that might not otherwise have been possible. You only need to choose the best option to suit your needs.