The Advantages and Disadvantages of Commercial Asset Finance

Published on 8th January 2019

Keeping your day-to-day operations running effectively requires high productivity levels and a strong base to be able to support growth. Ye, as well as bringing together a team which you can rely on, the success of your business also relies on it having access to vital equipment. However, on account of the cost outlay, this is often becoming a pitfall for many UK businesses and SMEs in particular. But rather than forcing your business into a precarious financial situation, you could acquire all the equipment your business needs in a manner that suits you through applying for Commercial Asset Finance. But in order to make an informed decision about whether this type of funding could benefit your business, appreciating the advantages and disadvantages of Commercial Asset Finance is crucial.

What are the Advantages and Disadvantages of Commercial Asset Finance?

For many UK businesses, Commercial Asset Finance offers a cost-effective opportunity to acquire all of the equipment you need whilst, at the same time, minimising the strain placed upon your finances. Yet like any finance agreement, it’s something that should be considered with all the facts to hand. In order to decide whether it’s the most appropriate route to take, the advantages and disadvantages of Commercial Asset Finance are laid out in the table below.

Advantages and disadvantages of Asset Finance for businesses
Advantages Disadvantages
Enables you to spread the cost of acquiring assets for your business, usually up to 5 years More expensive than using your own funds to support an outright purchase due to interest and any associated service charges
Depending on the chosen product, you can either purchase, rent or refinance assets Commercial Asset Finance products use the asset concerned as collateral, which will be removed from your business should you fall behind in the repayment scheme
Suitable for a wide range of both new and used assets, including equipment, machinery and vehicles You are responsible for maintaining and preserving the asset in question whilst it's under your care - including repairs and setting up a suitable insurance policy
Adverse credit usually isn't a problem Depending on the product, you may need to make a deposit or pay the first month's payment upfront (subject to negotiation)
Limited liability - if you're unable to continue with the relevant repayment scheme, only the asset in question is removed, nothing else in your business is affected
Interest and VAT could be reclaimed on a quarterly basis - for further advice regarding your financial entitlements, consult the advice of your accountant


Does your business need access to new or used equipment? Worried about how the expense may affect your finances? Apply for Commercial Asset Finance and learn more about how your business could benefit.

What types of Commercial Asset Finance are on offer?

Another reason why Commercial Asset Finance is so popular with many UK businesses is due to the products that are on offer. However, each of these products work in a different way to support your business:

Hire Purchase

If your goal is to acquire the use of valuable assets and, eventually, gain ownership, a Hire Purchase solution might be the most suitable for your business’ needs. This type of Asset-Based Lending works by the lender purchasing the asset in question from a trusted supplier on your behalf. However, before you use it the lender will require you to make an initial deposit first. This deposit takes into account the asset’s full VAT and an agreed percentage (usually around 10%) of its total purchase price, but is subject to negotiation. As soon as this has been paid, you can make full use of the asset in your day-to-day operations, whilst making fixed monthly repayments across an agreed term of up to 5 years, plus interest. And when the agreement matures with all relevant payments resolved, ownership handed over to your business.

Leasing

Meanwhile, if you only require the asset for a limited time or if it’s subject to a rapid rate of depreciation, you could choose to lease the asset instead. This means that you’re just borrowing the equipment and paying to make use of it in your business. Such agreements tend to last for a term of up to 5 years, during which time you’re required to make monthly lease payments, plus interest. However, if the asset is particularly expensive, some providers may offer longer terms of up to 7 years. These payments are usually calculated by taking into account the asset’s current worth and it’s residual worth by the time the agreement matures. And once the agreement does mature, you will have the option of either returning the equipment, extending the lease or upgrading to another model.

Asset Refinance

In addition, if you happen to possess any unencumbered assets on your balance sheet such as equipment, machinery or vehicles (which aren’t a fixture of your premises), you could benefit from applying for an Asset Refinance agreement. This product enables you to release up to 100% of the equity contained within one or more of your business’ assets. It will form a lump sum that can be used for any number of purposes including the purchase of new and/or used assets. However, this involves temporarily transferring ownership of the asset(s) to the lender, but you’ll still have access to them all the same, providing you keep up with the repayment scheme. This type of Asset-Based Lending can also be agreed for a term of up to 5 years, during which you’ll need to make fixed monthly repayments plus. Once the agreement matures, with all payments met, ownership is returned to your business.

Thinking about applying for Commercial Asset Finance?

Making sure that your business has access to all of the equipment it needs in order to operate is a vital responsibility. The obstacle, however, is often the cost. But rather than punching holes into your finances in an attempt to support an upfront payment, there are other, more cost-effective solutions available - providing you know where to look. The Alternative Finance industry is allowing more and more business owners to gain access to the equipment they need to support their operations. Yet with so many different products to choose from, how can you be certain that you’re sourcing a suitable agreement from a lender you can trust?

At Rangewell, we’re an Access to Finance specialist and have mapped over 400 lenders to offer business owners and their advisors an overview of more than 23,000 business finance products. Our services are completely free to use and we’ll also guide you through the application process. So if you’re looking for a cost-effective way of gaining access to new or used assets for your business, apply for Commercial Asset Finance today or find out more with Rangewell.


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David Harrison

David Harrison

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