What is Soft Asset Finance?
Soft Asset Finance is similar to Hard Asset Finance in that the bank or funder purchases the items required by the customer who then pays the bank or funder in fixed instalments over an agreed term. Soft Asset Finance is not offered by every bank or lender because there is often no tangible asset that can act as security.
Types of Asset Finance
This is legally an agreement to hire with the option to purchase at the end of the agreement. Spread the cost of a purchase over time by paying in installments. The item appears on your company balance sheet and you are immediately responsible for maintenance and insurance costs. At the end of the purchase agreement, your business owns the asset.
Sale and Leaseback allows a business to sell an asset that it owns to a funder in return for cash, but the funder then leases the asset back to the business over an agreed term for an agreed cost. This is a simple answer for asset rich, cash poor businesses as they can unlock capital tied in existing assets by effectively selling equipment, whilst remaining its sole user, freeing up cash for other areas of the business. An advantage of Sale and Leaseback is that an agreement can be set up quickly as the asset itself acts as the security.
A Finance Lease allows businesses to spread the cost of the full value of the asset over time, giving full use of the item without technically owning it.
An Operating Lease is a sophisticated arrangement that affords businesses the benefits of using the equipment whilst the lender takes the burden of ownership and the risk in its resale value.
With Contract Hire, businesses can enjoy full use of the asset over the hire agreement without the responsibility of ownership. Simply return the asset at the end of the agreement. This is a popular choice for vehicles.
An Unsecured Business Loan agreement doesn’t require Assets because they are based on the creditworthiness of the business. Most banks prefer secure loans where an Asset itself can act as security. This is a quick and simple service with decisions typically made within 24 hours of application. Repay in fixed monthly payments over 6 months to 5 years.
Working Capital Loans are used to finance a company's short-term day-to-day requirements. They are designed to inject cash into the business to enable it to make quick changes, such as going after new opportunities, employing extra staff for expansion or buying stock. Working Capital Loans are not generally used to purchase assets for long-term investments. They can help businesses grow quickly and/or manage their cash flow.
Funding options made simple
Knowing which finance option is best for your business and the asset you are looking to fund can be a daunting task.
To help with the decision, we've put together this simple guide which summarises the main differences between finance options. We understand though that everyone's circumstances are different, so we would always recommend speaking to our experienced team for tailored advice.
Common Misconceptions Surrounding Asset Finance
Only large companies use Asset Finance
This is a popular misconception driven by the belief that lenders will only advance money to businesses that don't need it. Any business from a start-up through to SME's and large companies whose shares are traded on the stock exchange use funding to expand their business. The important issue to the lender is that the company they lend to has the ability to repay them.
Asset Finance is for businesses that can't afford to pay upfront
Not true - It's is a way for businesses to acquire the equipment it needs today and pay for them from the cash flow generated by them. Using finance allows you to retain current working capital and fund expansion in terms of manpower and materials.
It is better to buy equipment outright rather than use Asset Finance
Using Asset Finance allows you to acquire the business-critical equipment that you need with minimal cash outlay, and allows you to pay off the funding over what may be its useful economic life.
You can only use Asset Finance for large purchases
You can fund any asset from £1,000 upwards. It doesn't matter if it is IT software, machinery or an addition to your vehicle fleet.
Asset Finance is expensive
Not necessarily, you will have the equipment you need immediately. The cost of not having the equipment could be far higher; if you cannot win or compete for business-critical contracts that are therefore won by your competitors meaning you do not grow as a business but they do. It wouldn't be the first time a small company has beaten its larger competition to contracts simply because they committed to the equipment needed to fulfill a potential client's specific needs, where the larger rivals would not.
Back in June 2018, we asked over 100 businesses for their views on Asset Finance. We've created an infographic based on the results:
The results show that:
35% of businesses believe it is better to buy equipment outright; however, using finance keeps cash within a business to allow for expansion in other areas while paying over one to five years.
Only two-thirds of businesses are aware that finance can cover assets from as little as £1,000.
One in five businesses believe finance is for those that can't afford to pay outright; however, lots of large businesses including multi-nationals use finance in one form or another who benefit from healthy cash-flow and tax savings.
Why choose Reality Finance?
We are a top Asset Finance Provider, demonstrated by our consistent 5* Feefo ratings.
We provide Asset Finance within the UK for all types of businesses, from start-ups and small businesses through to large companies.
We are more than just a Broker, we are a principal lender in our own right; meaning additional flexibility in your funding options.
We know Asset Finance requirements inside out, so after a quick discussion with you, we can determine what funding types your business is eligible for, and which of our lender's may be able to offer the best rates for you.
We explain your Asset Finance options and work with you to find the best funding solution for your business.
We are on hand to answer any questions you may have regarding the process.
We provide quick Asset Finance, with most funding decisions made within 24 hours.
We can also provide Asset Finance for your customers if you are a vendor, manufacturer or distributor.
Would you like to find out more?
Give us a call on 01483 413859 and speak to one of our lovely team.
Or alternatively you could fill in our callback request form and one of our Brokers will call you directly to discuss your requirements.