How does Asset Finance Work?
If you want to avoid the huge capital expenditure associated with getting important business assets, you have a few choices of finance available to you.
You can simply buy an asset and then spread the cost over a period of time by paying in installments. You will fully own the assets at the end of the payment terms.
Your lender buys the asset on your behalf and then rents it to you under a leasing agreements. At the end of the leasing period you usually have the option of paying a balloon payment to buy the asset or setting up a new leasing arrangement. You can also return the asset and get a new one on a new agreement. Leasing works well for vehicles.
Finance or capital leases
This is a longer term lease arrangement designed for the entire life of the piece of equipment. You don’t technically own the asset so the rental costs can be offset as an expense.
Operating leases/Contract hire
The lease company usually looks after the maintenance on this and you are not expected to pay the full cost of the asset.
In these scenarios, the business can repay the cash advance as the turnover increases, allowing for the ups and downs of business life.