Commercial asset finance helps you buy or lease essential equipment without large upfront costs, freeing up cash flow while keeping your business moving.
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Whether you’re looking for a new delivery vehicle, essential machinery for your factory, or office furniture to kit out your HQ, there are some assets you just can’t trade without. That’s where commercial asset finance can come in handy – a way to finance these key assets and then pay them off in instalments. This keeps your business competitive without having such an immediate impact on your cash flow.
In this article we’ll take a deep dive into asset finance, how it works, the major benefits for your business and how asset finance compares to a flexible business loan.
Commercial asset finance is a financing method that allows your businesses to buy assets (equipment, vehicles, machinery) by spreading the cost over time.
The core advantage is that you get the asset you need now, without having to wait – and without the major outlay of buying the asset outright. Instead you take on a predictable and manageable debt, that can be easily paid off over time.
Asset finance is different to taking out a business loan. You can’t use these funds as a general source of capital. You’re limited to using the funds to buy particular assets that you’ve specified to the lender.
Let’s see how the process works:
Asset finance comes in several different types, depending on whether you want to buy the asset outright (hire purchase), or want to lease the asset and use it until you reach the end of the term (leasing).
Here’s a quick overview of the most common types of asset finance:
With a hire purchase agreement, you make regular payments towards the asset, with ownership transferring to you at the end of the agreement. This is the best option if your key aim is to own the asset at the end of the term.
You can also lease the asset from the lender via a finance lease. At the end of the lease term, you have a few options: you can return the asset, purchase it for a nominal fee, or renew the lease. This is a great option if you need to regularly upgrade your equipment.
An operating lease is similar to a finance lease, but the lease term is typically shorter. With an operating lease your lender retains ownership of the asset. If you need the asset now but don’t want to own the equipment in the long-term, this is a sensible option.
Contract hire is mostly used for hiring vehicles, like cars or vans. The agreement will usually include maintenance and servicing, giving you a vehicle to drive with predictable costs and one monthly repayment to make. This is good for fleets.
Equipment finance is a broader term that covers various types of financing for business equipment. This can include loans specifically for purchasing machinery, technology or other essential assets that are needed to run the business.
If you’re ready to look for an asset finance agreement, the next step is to find a lender. This could be via an asset finance provider, like a high-street bank, or by partnering with a broker who specialises in commercial asset finance deals.
Let’s look at the key differences:
Banks and specialist asset finance companies will offer both fixed-rate and variable-rate asset finance products.
Going direct to the lender can be a simple way to find a finance agreement, but you are limited to a finite range of finance products. You’re also likely to get less advice when assessing the various asset finance options, terms and conditions.
Brokers are intermediaries who source asset finance deals from multiple lenders to find the most competitive rates and terms.
If you need help navigating the complex network of asset finance lenders and available deals, a broker can be a sensible option. You’ll have access to a wider network of lenders and a broader range of products – all of which means you’re more likely to find a deal that suits your specific needs as a business.
Note that brokers are likely to charge a fee, and may also get commission from specific lenders, so this should be balanced with your need for support – for example, if you’re after specific equipment or have complex financial affairs, a broker can help you target the outcome you need.
As with any kind of business finance, it’s important that you do your homework, research the market and find a provider that’s a good fit for you.
Factors to consider include:
Exploring the whole market helps you hone in on the ideal asset finance deal for you. This is where commercial asset finance aggregation can be a useful tool, helping you to review multiple asset finance providers and make informed decisions.
Aggregation helps you use comparison platforms, like Capitalise, or brokers to evaluate finance offers from multiple lenders. Instead of getting overwhelmed by the sheer choice of lenders and products, you can use specific criteria to measure and evaluate the best deal.
What are the benefits?:
Before you dive into the comparison sites, it’s important to know your business needs, what you can afford and what your ideal terms might be.
Be sure to compare fees, terms and repayment flexibility, and to not overlook smaller, specialised lenders. They could well offer the perfect deal for your business.
As we’ve explained, partnering with a commercial asset finance broker can be a real advantage when you’re on the lookout for commercial asset finance.
In particular, a broker will have the knowledge, connections and negotiation skills to get you the best possible rates for your commercial finance deal.
Having a wealth of commercial asset finance providers in the capital gives you a huge selection of lenders and products to choose from. But don’t discount looking at a more local level. There are plenty of regional providers that offer specialist asset finance for your business type, industry or niche sector.
Understanding your cash flow limitations and budget capabilities is critical before you sign up for an asset finance deal. Commercial asset finance calculators can be extremely helpful tools to help you understand the payment implications.
Calculators like this one from Natwest, help you estimate your monthly payments, interest rates and total cost of borrowing. Based on this information, you can make better informed decisions, taking into account the risks and cash flow impacts.
By entering the asset cost, deposit amount (if any) and the loan term and interest rate, the calculator will give you a realistic breakdown of the overall costs.
When budgeting, don’t forget to factor in maintenance costs, potential tax benefits and how the asset will contribute to your business growth, sales and revenue.
A major outlay for many companies is the cost of buying vehicles. With commercial vehicle asset finance, and options like contract hire, you can spread the expense of updating your delivery van, or company fleet, without hitting your cash flow position.
Vehicle financing can cover the purchase or leasing of vans, trucks, company cars, and specialised assets, like farming or construction vehicles..
What are the benefits of a commercial vehicle asset finance agreement?
If you’re thinking of upgrading your vehicle, it’s good practice to decide whether you need to own the vehicle at the end of the term, or keep upgrading to new models.
Asset finance isn’t just focused on buying or leasing new assets – commercial asset finance can be equally well-suited to buying used equipment.
Many lenders offer financing for second-hand machinery or vehicles, giving you the option to choose a used asset that will be a much smaller expense for the business.
Purchase price will be smaller, so there’s less initial outlay and less to pay off.
Look out for:
Commercial asset finance may sound like the perfect way to expand your car fleet, upgrade your factory equipment or bring new technology into the business. But, as with any kind of business finance, there are pros and cons to consider.
Let’s look at the potential positives and negatives of asset finance:
Flexible business loans from iwoca allow your business to finance purchases without any asset-specific agreements.
Yes, a deposit is typically required for commercial asset finance. This often around 10% of the asset's purchase price. However, the exact deposit amount can vary based on individual circumstances and the lender's assessment.
Commercial asset finance is great when you need an injection of capital for a specific piece of equipment or purchase. But if your funding needs are more complex and evolving, a flexible business loan can be a helpful solution.
Business loans tend to be open-ended around the usage of the funds, which can give you more options when your business priorities are in flux.
When asset finance is better:
Hybrid approach:
You don’t have to just choose one approach to funding your business, of course. Some businesses combine asset finance with business loans for greater flexibility, and get the benefits of flexible loans alongside the cash-flow benefits of asset finance.
At iwoca, we know the value in having multiple routes to business funding. If a flexible business loan sounds like a better fit for your finance needs, we’re here to help.
Our Flexi-Loans offer:
