Asset finance is the practice of using a company’s balance sheet assets (such as investments or inventory) as a security to borrow money or take out a loan against what you already own. It can provide a secure and easy way of getting working capital for your business.
Various things can be offered as collateral, from inventory, machinery and even buildings. For example, a transport company may use its vehicles as an asset to secure finance against. The amount loaned will usually depend on the value of these assets which the finance is secured against.
Asset financing is often used as short-term funding solution - to pay employees, suppliers or to finance growth. It provides a more flexible way of borrowing compared to traditional bank loans. For growing businesses and start-ups especially, it provides an easy way to increase working capital .
Advantages of asset finance:
Easier to obtain than traditional bank loans
Fixed payments make budgeting and cash flow simple to manage
Most agreements have fixed interest rates
Failure to pay only results in the loss of assets, nothing more
Disadvantages of asset based finance:
There is the risk of losing important assets required for running a business
Value of the assets which a loan is secured against can vary, with the possibility of low valuations
Not as effective for securing long term funding
Asset finance can help many businesses, but it’s important to be sure this financing method is right for your business model.