Summary
¦ Small to medium-sized businesses will drive UK economic recovery, but need a capital expenditure boost.
¦ Asset finance is a very flexible way to unlock cash.
¦ It can be used for purchases from vehicle fleets to IT.
¦ It can be tailored to specific contract or business depreciation policy.
Economic recovery in the UK will be driven largely by small businesses which are the heart of any mature economy. A significant boost to capital expenditure is desperately needed by SMEs in order to stimulate this recovery, and this is where lending more in the form of asset finance can be hugely beneficial.
The flexibility of asset finance makes it vital to unlocking cash and powering growth but is often only seen as a means for businesses to fund acquisitions. Mechanisms such as sale and leaseback can help companies that need to unlock the capital contained in a business asset, such as a fleet of vehicles or a suite of IT. The finance provider can simply purchase the asset from the customer and lease it back at a reasonable rate, releasing the capital which can then be reinvested appropriately within the business.
As we look to exit the recession, the UK asset finance industry has a significant role to play in stimulating, and supporting, business growth. As a leading provider we are keen to communicate its advantages and flexibility to SMEs to help the sector realise its growth potential. Our challenge is to help businesses understand the benefits of considering alternative methods of acquiring key assets.
Asset types
As well as a funding mechanism for buying cars and vans, asset finance can also be used for purchasing a range of other asset types. Businesses may choose to fund assets such as technology or machinery with an outright, upfront cash purchase, without realising the potential impact this may have on the company’s financial stability. Without this cash in the bank, is the company prepared for an unexpected change in market conditions, or a severe depreciation in the asset value? Will it always have the financial reserves to cope, whatever the economic weather?
A key challenge is the SME sector’s cultural view of asset finance. There is a common perception that committing to a financing solution involves becoming ‘locked in’ to a long-term debt owed on an asset that will just depreciate in value, leaving the business with a greater debt owed on the asset than it is worth. The reality is that different forms of financing will suit different types of assets, and an intuitive funding provider will ensure that its client benefits from a deal that is structured around their particular business needs. Residual value investments can offer economic costs for the duration of the lease.
Machinery purchases
Conversely, some businesses, particularly within the manufacturing sector, will view longer life assets such as plant and machinery as better suited to upfront ownership. These assets are more durable and hold their value for longer, thereby proving a worthwhile investment for the business. But if the business has decided to invest capital in its machinery upfront and own it outright, in fast-moving sectors where manufacturing technology develops at a rapid pace it will soon be left behind. By using asset finance, the business can actually future-proof its investment as it provides the flexibility to update the production line as and when the latest technology is released.
The benefits of different forms of asset finance to an SME are really just the start in terms of the potential it provides to develop a business, even in the most challenging economic times.
Asset finance is an additional, committed line of credit that can be tailored to match a specific contract or business depreciation policy. The range of facilities available not only allows for individual cash flow requirements but can also enable the financier to take a true risk in the future value of an asset to maximise the cash it generates. This flexibility will enable businesses to do more with less, to expand into new markets, to recruit and develop more valued staff, and to ensure a much-needed future of prosperity for our economy.
