Asset Finance for Machinery
Get in touchCompanies in the UK are taking asset finance as the primary solution for their long-term needs. It allows them to borrow money by keeping their current assets as security.
Asset finance helps with business growth and spread the cost as no huge upfront payment is required. Furthermore, high-value assets can also be used as loan payments when you are struggling with cash flow in the business.
Hiring a team of professional experts can help you figure out the best possible plan for monthly payments according to your business demands.
The expert team can also provide some clarity about residual value, working capital, and releasing capital when you feel stuck in an investment.
What is Asset Finance for Machinery?
Asset finance for machinery is a type of financing that is specifically designed for businesses that need to purchase or upgrade machinery or other types of equipment.
It is a form of financing that allows businesses to acquire the equipment they need to operate without having to pay for the full cost of the equipment upfront.
Instead, the business will make regular payments over a set period of time, typically over several months or years.
Asset finance spreads the costs over time so that you may not feel overburdened by the expense.
You will pay the amount in regular intervals over an agreed period. Interest rates are decided beforehand to help you estimate the total costs.
Asset finance enables businesses to release funds against the value of new or used assets. This agreement allows the asset transfer to the lender who provides the loan according to the asset's value. This is known as Asset Refinance.
How Equipment Financing Works?
It works based on considering the asset itself as collateral for the loan. It allows you to get a new equipment loan equivalent to the total price of the machine.
The loan can be repaid over time according to the pre-decided repayment terms.
Soft costs require a large upfront payment. Hence, it is advised to ensure that at least some of the cost is incurred by the financial company so that you are not overwhelmed by the investment.
A professional service provider can help you in deciding the competitive rates according to your budget and requirements.
How Long does Asset Finance Take to Arrange?
Asset finance does not take much time to process. However, the following factors may affect the issuance of payment:
Trading History: If you are a new business with no prior trading history, then you might have to provide proof of means of repayment. Providing a business sale return history can help to earn the lessor's trust.
Equipment Type: Asset finance may take a longer time for heavy machinery and those which are not readily available. You need to contact the provider to know the exact time frame.
Business Plan: A small business with a well-devised business plan is more eligible than a business lacking any direction. Make sure to pitch clearly to get the asset in the minimal time possible.
What are the Types of Asset Finance for Equipment?
Asset finance includes the following types: Hire purchase, Equipment Leasing, Finance lease, Capital Lease, Operating Lease and Contract Hire.
Hire Purchase:
Hire purchase allows you to purchase assets in instalments paid over a fixed period. It allows you to have full ownership after paying the full cost.
The item cost will be spread over time, and you will be solely responsible for any maintenance and repair.
Equipment Leasing:
With equipment leasing, the lender will buy the product on your behalf and rent it out to you.
In this way, you do not need to pay the full amount upfront and only need to pay a fraction of the payment along with the rental cost.
After the lease agreement ends, you can re-rent, purchase it at the market price or get a new asset by upgrading the leasing agreements.
Alternatively, you can also return the item if it is no longer required.
Leasing agreements spread the cost over time and provide the flexibility to upgrade or terminate the contract depending on the business's needs.
Finance Leases and Capital Leases:
Both finance lease and capital lease are a combination of hire purchase and equipment leasing.
Like a hire purchase, you are allowed to spread the cost over time, but the asset is not under your ownership.
Finance lease agreements are done for the long term and can provide pre-tax profits as the asset is not listed in your balance sheet, but you have the required access.
Operating leases and Contract Hire:
Operating lease and contract hire closely resembles equipment leasing. The machinery is rented out to you, but the lease company is responsible for the maintenance during the rental period.
Just like a finance lease, the operating lease is not reflected on your balance sheet, which can help you save tax money. It is a relatively affordable option in asset finance as it brings pre-tax profits.
What is the Interest Rate on a Machinery Loan?
The interest rate on a machinery loan varies from 2%-20%.
Interest rates on a machinery loan depend upon the type of machinery, estimated life of machinery, finance companies, business status and length of purchase.
The hire purchase interest rate for businesses with excellent trade credit is as low as 3%, while it can reach up to 50% for those with poor trade credit.
For the asset refinance term, the rate generally ranges from 2%-15% depending on the value of assets placed as collateral for security.
What are the Benefits of Asset Finance Solutions for Machinery?
There is a range of benefits for asset finance on machinery and these include:
Minimal upfront payment for purchasing expensive machines.
Flexible cash payment allows you to pay over the specified time.
Competitive finance plans and ease cash flow.
No extra collateral is required as the asset is your security.
Maintenance charges can be supported by the finance company depending upon the chosen plan.
Economical as compared to the other funding solutions.
Soft costs like delivery and installation are covered by the lender depending upon the selected plan.
Asset Finance Solutions allow your business to thrive without compromising the cash flow. You can get to access equipment at flexible rates without investing a huge amount of money. Some of the benefits are:
The benefits as mentioned above make Asset finance solutions a preferable choice for businesses operating on various levels. The low-risk plans and flexible term pay give it an edge over other financial support options.
What are the Disadvantages of Equipment Asset Finance?
Asset finance is a desirable option but is not without its own set of disadvantages. The disadvantages are:
If a complete cash payment is not made by the primary lease term, the provider can confiscate the asset.
The majority of finance plans require a minimum 12-month agreement to release cash, and short-term contracts are rare.
You may have to incur the damage cost of the asset depending upon the selected plan.
A large down-payment may be required for the first time.
Hiring professional asset finance providers can help you to make a low-risk deal after weighing up the pros and cons.
Do your research properly and get quotes to choose the right type of plan according to your business requirements.
Equipment Financing Vs. Equipment Leasing:
The former allows a new equipment purchase and spread the cost over a fixed period. However, the key difference is equipment leasing allows lenders to rent out the asset to you at a decided rate without transferring ownership.
Equipment leasing is feasible for the short term. If you intend to use the asset for more than three years, then buying it will be more cost-effective.
What Type of Machinery can be Financed?
The following machinery can be financed:
Industrial equipment, including farming machinery, textile, construction equipment and manufacturing machines.
Heavy commercial vehicles, including pick-up trucks, vans or car fleets.
Gym equipment.
CNC machines.
Office equipment.
Medical machines include X-Ray machines, ultrasound machines and others.
Machinery used for packaging and handling materials.
If the required machinery finance is not mentioned above, then contact the team to get your specialised quote.
Rest assured that the team will take care of your business needs in the best possible way.
FAQs:
Can I get Equipment Finance with Bad Credit?
It depends upon the type of finance plan, the business status and the lender's choice. Credit matters if sole traders want to purchase assets through hire purchase or leasing.
Using high-value assets as collateral may improve your chances, but you need to show a valid income stream. Ultimately, it depends upon the lender's satisfaction with the cash injection.
Is Machinery Asset Finance Regulated in the UK?
Machinery finance is regulated by the government agency Financial Conduct Authority (FCA).
This ensures that the market, business and employee operate according to the specified laws for funds release and finance agreement.
Summary:
Finance assets help you purchase items in an affordable way. The cash flow will remain unaffected as the business won't have to pay for the asset outright.
It allows direct and immediate access to the equipment. This investment in financial assets provides outright flexibility.
Make sure to choose wisely and invest in the plan which provides the maximum benefits. Hiring a team of experts can help you gain some insight into the residual value of assets and explain the best choice for tax purposes.