Asset Financing is a type of borrowing related to the assets of a company. In asset financing, the company uses its existing inventory, accounts receivable, or short-term investments to secure short-term financing. Book a meeting with Mark to find out about how asset finance might work for your business
What is Asset Financing?
There are two ways to finance assets:
- Companies use financing to secure the use of assets, including equipment, machinery, and other capital assets. A company will be entitled to full use of the asset over a set period of time and will make regular payments to the lender for the use of the asset.
- The second variation of asset financing is used when a company wants to secure a loan by using the assets they own as collateral. Like other commercial loans, funding is given out based on the creditworthiness of a company and the prospects of its business and projects.
Both types of asset financing provide flexibility for a business owner by increasing short-term funding and working capital.
What are the typical terms of Asset Financing deals?
How much can I borrow?
Loan values brokered through asset financing are determined by the actual value of the assets themselves and it can be an effective alternative when a company wants to arrange finance quickly or if their business case does not qualify for traditional commercial lending.
The strength of the customer position and the value of the asset will determine the terms of the deal and the interest rates proposed by the funders. Each unique case will have different rates.
Typically a deposit is required for asset finance. When purchasing an asset through hire purchase a minimum deposit of 10% is required.
Length of term
Asset financing can be arranged for terms of 2-6 years but most deals are 3-5 years.
Examples of asset finance deals brokered for our clients include:
Asset Financing to purchase an asset
The client had won a new contract and needed new equipment to deliver the project. They were aware that the timescale would make renting the equipment more costly to the business.
We arranged an asset finance solution that allowed the client to buy plant and machinery to the value of 90k
Repayments were made over the term of the 3-year project
Benefits to the business
- Access to alternative funding
- The investment in a valuable asset
- Facilitated growth of the business
Asset Financing to raise capital
One client raised working capital to allow to stabilise cash flow during the delivery of a large project. The finance proposal was time-bound to a project delivery deadline
JFS arranged an asset finance solution that allowed the client to raise 25k against a business asset. Fixed monthly repayments were in made over 3 years.
Benefits to the business
- Funding raised quickly generally within a week
- Still have the use of the business asset for the term loan
- Doesn’t impinge on the business operations
Three Simple Steps to Arranging for Asset Financing with Johnston Financial Solutions
- Details of the asset
- Make, model and year of manufacture of the asset preferably on an invoice
- Two years business accounts
- Six months bank statements