The Advantages of Asset Finance Over Traditional Credit Facilities
Some small businesses have not yet realized the benefits of this type of financing. These firms usually procure secured loans or commercial loans to purchase the equipment they need. In fact, others use their own working capital with the hope that the new piece of equipment or machinery is going to generate enough income to recoup the cost. These are usually costly mistakes, because the funds can be put to more productive uses.
With Asset finance, the business does not need to use any of its capital to acquire a new equipment. Neither does it have to use inventory or business assets as collateral for a loan. This is because the financed asset acts as collateral for the credit facility.
After deciding to procure a truck or any other asset, movable or immovable, the business owner needs to find the right truck as well as the most affordable vendor. The next step is obtaining a quote and an invoice from the seller. This can be an authorized dealership or private seller. Armed with the invoice, the business owner can approach an asset financier for assistance. This can be a bank or a private lender.
Usually, lenders look at the financial history of a business, it’s credit rating and balance sheet when processing application. Others may also require a business proposal on how the new asset is going to improve the performance of the business. If the application is approved, the transaction moves to the next stage.
Financiers usually contact the supplier of the asset to arrange for payment and delivery. Once the asset has been delivered to the business owner, payment can be forwarded immediately, or within an acceptable period of time. The business owner can start paying for the item once the grace period expires (usually after 30 days).
Benefits of Asset Finance
Since no additional collateral is needed, small businesses that have little or no assets that can be used as security can acquire the equipment, vehicles or machinery they need to grow and generate more revenue. This is one of the main reasons why asset finance is popular with both small and large enterprises.
Another major benefit of this type of financing is the fact that business owners do not have to utilize business capital to acquire expensive machines, equipment or automobiles. These funds should instead be used for inventory, payroll, overheads and other operational expenses. By acquiring costly machinery through asset financing, businesses can grow at a faster rate.
While some financiers require a down payment, others can offer up to 100 financing. This means that business owners do not need to spend a single cent on asset acquisition, and this helps in preservation of capital for more important business obligations.
Asset finance, unlike overdrafts and commercial loans, usually comes with extended terms. Normally, the economic life of an asset is used to calculate the repayment period. This can translate to several years; meaning that monthly installments will be affordable.
Asset finance applications are usually processed much faster compared to traditional loans. The amounts are usually very high. With conventional loans, lenders usually have loan limits that may not be enough to fund investments.
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