ASSET FINANCE IN THE UK VERSUS BUSINESS LOAN
As a UK business owner, when you are looking for funding to assist in the growth of your business there are two main forms of funding available to you – asset finance and business loans.
We, as asset finance brokers, are often asked by clients to guide them on which method of finance is right for them.
This blog post aims to answer this question. When would you choose asset finance in the UK?
Both forms of funding are extremely useful and each is suitable depending on the specific outcome you are looking to
achieve.
For the avoidance of doubt, let’s walk through the difference between the two types of funding:
ASSET FINANCE
Asset Finance UK refers to a finance facility that is used when a business needs to acquire DURABLE,
IDENTIFIABLE and MOVEABLE assets that are necessary for them to do their job.
DURABLE – By durable we mean that the asset must have a useful economic life that is at least as long as the finance
period being requested.
For example a Heavy Goods Vehicle will normally remain in excellent condition for up to three years, in good condition for five, in average condition up to ten years, in poor condition up to 15 years, and beyond this is likely to be scrapped.
As such an asset finance company will be happy to consider financing a new Heavy Goods Vehicle for up to 7 years, as
they know it will still be in good condition by the end of this period.
If the HGV is 10 years old the finance period available is likely to be limited to 3 years, by the asset finance company,
as the asset begins to move into poor condition and reaches the end of its useful economic life.
The asset finance company always needs to be sure that if they need to repossess an asset,that it will be easy to sell on
and that they can recover any monies owed to them, and as such they cannot offer asset finance terms on periods
greater than the useful economic life of the particular asset.
As an opposite comparison, a new telephone system or computer equipment can be financed up to 5 years, however
used equipment of this type is considered to have almost nil value and most finance providers wont wish to offer
finance if this equipment is used.
Asset finance brokers are skilled in securing the best asset finance terms for your business based on the durable feature of your asset.
IDENTIFIABLE – The asset must have a unique identifier – this can be a chassis number, registration number or serial number – something that allows an asset finance company to specifically identify the asset as the one that they are
funding. This is important as the asset finance company takes security over the asset and may need to repossess it in the event of default.
Assets that cannot be uniquely identified are normally not able to be funded by asset finance, however some providers
take a view on assets such as office furniture (as an example) which may not have serial numbers associated with it,
based on the overall strength of the applicant business. If there is little doubt that the business will remain, some
funders will fund assets that are harder to identify, but for the majority they will be unable to assist with a genuine asset
finance facility.
MOVEABLE – This is the key criteria that separates asset finance from commercial property lending. The asset must
be able to be moved in order to be suitable for asset finance. The finance company may need to repossess the asset and
as such it must be possible to physically recover the asset. So assets with wheels or tracks are always suitable for asset
funding. Machinery is always suitable for asset funding. Portable buildings can be funded by asset finance, provided
they are genuinely moveable without being damaged or destroyed in the process.
However, if assets are assembled and located in a building that would make it impossible to remove without causing
damage to the asset then they are likely to be unsuitable for asset finance. Additionally assets that form part of the fabric of a building (such as air conditioning equipment that cannot be removed without ripping out large chunks of a building) would also be unsuitable.
TICKED THE BOXES?
So, if you are looking to purchase an asset that satisfies these three criteria, then asset finance is likely to be the most
suitable finance option for you. If not, or if you are seeking cash funding to be used within your business, then business
loans are the way to go.
BUSINESS LOANS
Whilst with asset finance the finance provider takes security in the asset being funded, with business loans there is
normally no physical security available to a lender. Funding will be offered based on the finance strength of the
applicant company, and may require directors to provide a personal guarantee in order to secure the necessary funding.
Once approved business loans UK funding can be used for any purpose within the business and can be taken from
period ranging from 3 months to 60 months. Hopefully this blog post has answered your questions about the difference
between asset finance in the UK and business loans .
To discuss further please call MacManus Asset Finance, leading UK Asset finance brokers, on 01443 800621.
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