One of the more popular types of finance that can help businesses grow is asset finance. Asset finance options come in all shapes and sizes, and different options are offered to meet specific needs and situations.
Today, we want to delve deeper into asset finance to help you understand further what it is all about and the type of asset finances you can find, along with the pros and cons of asset finance:
While asset finance options fall under the same umbrella, there are three main types of asset finance out there: hire purchase, leasing, and loan finance.
- Hire Finance
Hire finance is a simple way to use asset finance for smaller assets such as equipment, vehicles, and IT assets. The agreement lasts for one year, and then it is renewed every month, every quarter, or every year, depending on the arrangement. Hire purchase is a type of hire finance agreement that usually lasts for between one and ten years.
- Lease Finance
Leasing is a more complex form of asset finance that is common with larger assets, such as property, equipment, and vehicles. There is a contractual commitment to the agreement, which means that it is expected to last for a specified time. This is known as the initial fixed term,
lasting anywhere between a few months to several years. After this, the agreement may have a rolling contract, which is renewed as many times as the business owner wishes until the total cost of the asset is paid in full.
- Loan Finance
Loan finance is used for assets such as property, plants, or equipment. It has the same basic structure as both hire and lease finance but a slightly different end product. Instead of paying the asset off over time, paying an agreed amount for the asset, and then eventually returning the asset, the loan is paid off in one lump sum (or several), and the borrower is free and clear of the asset.
What Are the Pros and Cons of Asset Finance?
- Pros – It Reduces Costs
The main advantage of asset finance is the fact that it can help to reduce costs for businesses. When a business opts for any of the asset finance options, it can help to reduce costs, especially when it comes to renting.
- It Provides Additional Funding
Another advantage of asset finance is the fact that it provides additional funding for business owners. This is extremely important for businesses that are growing, as additional funding is necessary for growth.
- You Can Use Asset Finance With Any Asset
The final advantage of asset finance is that you can use it with any asset. This is great if the business already owns the asset, as asset finance can be used to pay off the asset. This is also a good option if the asset was purchased by the business and is needed for growth, as it can be used to pay off that asset.
- Cons – It Can Be Difficult to Get Approved
The main disadvantage of asset finance is the fact that it can be difficult to get approved. For example, if you are looking to raise funds for an expensive asset such as a property, you may not be able to get approved. This is because lenders will want to see a good credit history and collateral, and you may not be able to provide these requirements.
- It Can Be Difficult to Find
The second disadvantage of asset finance is the fact that it can be difficult to find a company that offers asset finance. This is because, for many companies, asset finance is not a core part of their business. Instead, it is often an additional service that is provided if the company has the
capacity to do so.
Asset finance is available for businesses of all sizes, and you can use it for many different assets. Asset finance is a great way to get more funding for your business and can be used for big and small assets. But of course, pros and cons must be weighed to ensure you only get into asset finance if it gives you the most benefits!
Rpm Finance offers tailored financing solutions in Australia to help businesses get the money they need to grow. Apply online through this link or call our team on 1300 209 496 to get a no-obligation free quote today!