In our last blog we looked at what Asset Finance is. In this blog we will look at the reasons for using asset finance and the difference between hard and soft assets.
This blog is an excerpt from our free ebook, Asset Finance Explained. Download your copy here.
Benefits of Asset Finance
Flexible
- It can be used to fund almost any asset
- Payment terms and profiles can be tailored to meet cash flow
- Allows for equipment upgrades
- Can include hardware, software, training, installation and support services
- Can be adapted to the business’s financial circumstances, for example in the tourism sector, where work is very seasonal, payment patterns can be set up to reflect this
Easier Budgeting
- Makes budgeting and forecasting easy with fixed payments
- Payments are not subject to fluctuations in interest rates
- The real cost of acquisition reduces as inflation rises
- Fixed payments allow improved cash flow management
- This is never more important than in an uncertain economic climate
Tax Efficient
- Leasing is Tax deductible, reducing the net cost of obtaining the equipment*
Maximise your Budget
- Get what you want, when you want it, spreading the cost to make your budget work harder
Conserve Working Capital
- Helps reduce initial outlay
- Allows your capital to be invested in other areas
Convenient
- Easily manages supplier payment terms
- Payments made via Direct Debit, removing the need to settle invoices
- Asset finance is less risky than an outright purchase, as the lender takes on the risks of ownership
What is the difference between hard and soft assets?
A “hard asset” is any asset that satisfies ALL the following:
- It is easily recognisable and identifiable – e.g. vehicles, construction plant and machinery, engineering machinery, etc;
- It can be readily repossessed, either by the finance company or by another acting on their behalf;
- There is an established resale market open to the finance company, in which they could reasonably hope to recover a significant proportion of the outstanding debt.
Soft assets are smaller, lower-value items which either are worth less to begin with or that depreciate quickly. For example, IT hardware or furniture.
- What is Asset Finance and how does it work?
- What is a Hire Purchase Agreement?
- What is a Finance Lease?
Asset Finance Explained
Recognition of the importance of asset finance is growing among small and medium-sized enterprises (SMEs), but issues regarding access to funding and a knowledge of how asset finance works remain.
In our latest free e-book, we explain the different types of asset finance available, the benefits they can offer to your business, the VAT implications and to understand stage payment deals.
* For further information surrounding taxation, please consult your Accountant