When it comes to engineering and manufacturing finance, having the right asset finance agreement makes a big difference.
Aside from standard commercial loan options, there is a range of potential finance solutions for the engineering sector that can make a big difference to growing businesses.
Asset finance is a method of using your existing assets to gain access to important production equipment, working capital, machine tools, or other assets that your engineering business needs to succeed.
This kind of business loan provides an easy finance solution for getting new equipment. Instead of a purchase, an engineering business can pay an agreed set of payments to get access to engineering equipment without buying it outright.
With so many different types of engineering equipment spread across the entire engineering industry, you might be surprised to hear that most engineering equipment is accessible through this kind of asset finance business loan.
Some popular engineering equipment that asset finance covers include the following:
The application process for engineering asset finance can vary depending on the lender and the type of financing arrangement. However, here is a general overview of the steps involved:
Determine your financing needs: Consider the type and amount of financing you need and determine the best type of financing arrangement for your engineering business.
Research lenders: Look for reputable and regulated asset finance providers who specialize in financing for the engineering industry.
Prepare your application: You will typically need to provide information about your business, such as financial statements, tax returns, and a business plan. You may also need to provide information about the assets you wish to finance, including their make, model, and age.
Submit your application: Submit your completed application and required documentation to the lender.
Review and approval: The lender will review your application and determine if you are approved for financing. This process may take several days or weeks.
Sign the agreement: If your application is approved, you will need to sign the financing agreement and provide any required collateral.
Fund disbursement: Once the agreement is signed and all required documentation has been received, the funds will be disbursed to your engineering business.
Like most business loans, the engineering sector has multiple types of asset finance, including:
Hire Purchase allows the engineering business to take ownership of the assets once all of the payments have been made.
Hire purchase allows you to spread the cost through competitive rates that eventually end in a purchase. Hire purchase is a series of interest payments that end up with you owning the item at the end of the leasing period.
Refinancing focuses on businesses selling assets to raise funding for other equipment and assets.
This releases the cash value of your asset or old equipment so that you can get access to new engineering equipment.
Once you have the funding and equipment you need, you can buy the original equipment back under a new hire purchase or pay-to-lease arrangement.
A finance lease allows a business to have full access to engineering equipment as long as they pay the monthly costs.
This can give a business engineering equipment that they would never afford on their own at that stage of growth.
An operating lease is similar to a finance lease, giving a business some engineering industry equipment at a cheaper lease cost.
The main benefit is the reduced cost overall since you only keep the equipment as long as it is useful.
Each type of engineering asset finance has its own advantages and disadvantages, and the best option for a particular business will depend on the business's specific needs and goals.
The interest rates on engineering business equipment can vary from as little as 2% to as high as 20%.
Interest rates are impacted by the cash cost of an item, the business's expected growth and ability to pay it back, and even the amount of funds exchanging hands overall.
We do our best to find each business the interest rates that work best for their budgets. While the economy and the scale of their business can matter a lot, we work hard to provide them with the right options for their specific needs.
Asset finance provides several benefits for engineering businesses, including:
Access to Funds: Asset finance provides access to funds that can be used to purchase or upgrade equipment, allowing engineering businesses to grow and expand.
Improved Cash Flow: Asset finance can help to improve cash flow by providing an alternative source of financing, without requiring a large upfront payment.
Flexibility: Asset finance arrangements can be structured to meet the specific needs and goals of the engineering business, including the length of the financing term and the amount of the monthly payments.
Cost-effective: Asset finance can be more cost-effective than other forms of financing, such as loans, as the monthly payments can be structured to match the expected cash flow from the assets being financed.
Tax Benefits: In some cases, asset finance can provide tax benefits, as the monthly payments can be treated as a tax-deductible expense.
Preserves Capital: Asset finance allows the engineering business to purchase assets without tying up large amounts of capital, allowing the business to maintain a strong financial position.
Increased Competitiveness: By financing the purchase of new equipment, engineering businesses can stay competitive and take advantage of new technologies, helping to improve their overall performance and profitability.
Financing equipment like this offers an easy way to spread the cost of an item around.
Being able to spread costs so easily - including hidden costs, like the cost to run something - can keep your cash flow steady and provide your team with excess funds for other projects.
Asset finance also allows you to bypass a huge part of the small business economy.
The economy as a whole forces a small team to work with less equipment, but if you spread the cost into finance, even a two-person team can afford equipment that would normally be completely out of their price range.
Asset-based finance opens up more ways to get the equipment and assets you need without bankrupting yourself or going into debt to acquire it.
That alone can make it an invaluable option for smaller companies that need to establish themselves with a very limited budget and no reliable sources of funding.
Finance can be an invaluable tool for getting the equipment that your business needs to see success, especially as a relatively new business owner who may not have the funding to make large purchases.
Whether you're looking for something specific or just need more general funding for a lot of smaller tools and assets, turning to asset-based finance can be a surprisingly powerful way of getting what you need.