Asset Finance

Asset Finance facilitates the purchase of equipment / machinery or other high cost items required by a business.

For example, cranes, lorries, industrial equipment, farm plant machinery, although any type of asset can be considered providing it’s:

• Durable,
• Identifiable,
• Moveable, and
• Saleable

‘Hard assets’ are simpler to finance as opposed to ‘soft assets’ which are less durable and depreciate in value quickly.

There are many different types of asset finance but the most common are:

• Hire purchase, or
• Finance leasing

Under a hire purchase arrangement, the lender buys the equipment outright from a supplier and, on receipt of the payment, the supplier ships the equipment directly to the end customer. It works just like a HP agreement used to purchase a domestic car, in that:

• There are monthly repayment terms, and
• The equipment becomes the legal property of the customer once the finance has been fully repaid.

Finance leasing works in a similar manner, the exception being that the customer will only rent the equipment from the finance provider. At the end of the agreement the equipment remains the legal property of the lender.

Depending on the nature of the equipment, the lender will often be in a state of negative equity during the early stages of the finance agreement as the item (which was purchased ‘new’) will depreciate in value almost instantly. Lenders will need to balance this risk carefully and will look at customer profiles, credit worthiness and their ability to meet the financial commitments.