ASSET FINANCE IN THE UK VERSUS BUSINESS LOAN2020-11-122021-07-23https://macmanus.finance/wp-content/uploads/2018/06/macmanus-logo-with-typelogo-.pngMacmanus Financehttps://macmanus.finance/wp-content/uploads/2020/11/asset-finance-vs-business-loans.jpg200px200px
As a UK business owner, when you are looking for funding to assist in the growth of yourbusiness there are two main forms of funding available to you – asset finance and businessloans.
We, as asset finance brokers, are often asked by clients to guide them on which method offinance is right for them.
This blog post aims to answer this question. When would you chooseasset finance in the UK?
Both forms of funding are extremely useful and each is suitable depending on the specificoutcome 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 toacquire DURABLE,
IDENTIFIABLE and MOVEABLE assets that are necessary for them to dotheir job.
DURABLE – By durable we mean that the asset must have a useful economic life that is at leastas long as the finance
period being requested.
For example a Heavy Goods Vehicle will normally remain in excellent condition for up to threeyears, in good condition for five, in average condition up to ten years, in poor condition up to 15years, and beyond this is likely to be scrapped.
As such an asset finance company will be happy to consider financing a new Heavy GoodsVehicle 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 theasset finance company,
as the asset begins to move into poor condition and reaches the end ofits 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 suchthey cannot offer asset finance terms on periods
greater than the useful economic life of theparticular asset.
As an opposite comparison, a new telephone system or computer equipment can be financedup to 5 years, however
used equipment of this type is considered to have almost nil value andmost 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 businessbased 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 tospecifically identify the asset as the one that they are
funding. This is important as the assetfinance company takes security over the asset and may need to repossess it in the event ofdefault.
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) whichmay not have serial numbers associated with it,
based on the overall strength of the applicantbusiness. If there is little doubt that the business will remain, some
funders will fund assets thatare 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 propertylending. The asset must
be able to be moved in order to be suitable for asset finance. Thefinance company may need to repossess the asset and
as such it must be possible to physicallyrecover 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 assetfinance, provided
they are genuinely moveable without being damaged or destroyed in theprocess.
However, if assets are assembled and located in a building that would make it impossible toremove without causing
damage to the asset then they are likely to be unsuitable for assetfinance. Additionally assets that form part of the fabric of a building (such as air conditioningequipment that cannot be removed without ripping out large chunks of a building) would also beunsuitable.
TICKED THE BOXES?
So, if you are looking to purchase an asset that satisfies these three criteria, then asset financeis likely to be the most
suitable finance option for you. If not, or if you are seeking cash fundingto 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, withbusiness 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 toprovide 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 canbe taken from
period ranging from 3 months to 60 months.Hopefully this blog post has answered your questions about the difference
between assetfinance in the UK and business loans .
To discuss further please call MacManus Asset Finance, leading UK Asset finance brokers, on01443 800621.