commercial loan

Asset Finance And How Does It Work?

May 12, 2022

What is Asset Finance And How Does It Work?

Wondering what asset financing is and how you can use it to help your business grow? Asset financing is a form of lending that allows you to buy, replace, or refinance assets while using them as security for the loan itself. Asset financing is thus a great way to free up capital flexibly and take advantage of new opportunities.

What is Asset Finance Used For?

Asset financing allows your business to gather immediate capital. There’s a range of things you can use this cash for – investing in equipment, paying your employees, or taking advantage of short-term growth opportunities. It’s most commonly used to purchase new assets, which can include inventory, machinery, vehicles, and even buildings!

What are the benefits of Asset Finance?

There are many benefits associated with choosing asset financing over traditional loans. Because the cost of purchasing an asset gets spread out over a more extended period, asset financing allows you to expand your business while protecting your cash flow. It’s also a great way to pay off investments in new assets while they benefit your business. Asset financing models are more flexible than traditional bank loans. Depending on your loan provider, you can tailor your interest rates to meet your business and borrowing needs. They also allow you to get cash loans much faster than with conventional financing arrangements. This makes them great if you need short-term cash. Asset financing is particularly beneficial for small companies, startups, and other businesses that lack the track record or credit rating necessary to qualify for alternative funding sources. With fixed payments, budgeting and cash flow become easy to manage. And if you fail to pay, you lose only your assets, not your business.

Asset Finance Models

There are several major types of asset financing:

Financial Lease

With a financial lease, ownership of the asset and the asset itself are transferred to the business for a certain amount of rent.

Hire Purchase

In a hire purchase model, a finance company purchases the asset on behalf of another company. The finance company owns the asset until the last payment is made, at which point it’s sold to the company using it.

Operating Lease

Like a financial lease, an operating lease also involves renting the asset. However, this is a shorter-term method, and the asset is ultimately returned to the company that originally owned it.

Equipment Lease

This also involves renting an asset. However, with an equipment lease, the ownership of the asset is never transferred. The agreement can also be cancelled at any time.

Asset Refinance

Asset refinancing involves using assets you already own to get a loan. The value of your asset will determine the amount you can borrow.

Can Asset Finance Help My Business?

Asset financing is fantastic if you need flexible, short-term funds. They’re very beneficial for start-ups and other small or new companies, especially since they aren’t based on a third-party evaluation of your business output. In any case, make sure you do your research before deciding on the best finance model for your business. If you’re looking for a leading provider of business loans in New Zealand, the friendly team at Spinach is here for you. Get in touch with us at 0800 774 622 to see how we can help your business grow today.