What is Asset finance?
Asset finance is the practice of using a company’s balance sheet assets (such as investments or inventory) as a security to borrow money or take out a loan against what you already own. It can provide a secure and easy way of getting working capital for your business.
Various things can be offered as collateral, from inventory, machinery and even buildings. For example, a transport company may use its vehicles as an asset to secure finance against. The amount loaned will usually depend on the value of these assets which the finance is secured against.
Why Use Asset Financing?
Asset financing is often used as short-term funding solution - to pay employees, suppliers or to finance growth. It provides a more flexible way of borrowing compared to traditional bank loans. For growing businesses and start-ups especially, it provides an easy way to increase working capital .
Advantages and Disadvantages
- Easier to obtain than traditional bank loans
- Fixed payments make budgeting and cash flow simple to manage
- Most agreements have fixed interest rates
- Failure to pay only results in the loss of assets, nothing more