Asset finance suitable for your company? Although the process of using asset finance is usually beneficial to a company there are some points to consider. As with all financial contracts you should make sure that you are fully informed before making a commitment. There can be some negative aspects to asset finance, but depending on your company and it’s current situation they may be insignificant when compared to the positive aspects.
Making use of asset finance allows you to keep your firm’s borrowing options open. An operating lease is classed as an expense rather than a debt so it does not effect your credit rating.
Small, regular lease payments free up your cash flow. This enables your firm to adapt more easily to changing business conditions.
Paying a fixed monthly amount over a defined period of time makes for more straight forward budget management.
Lease payments are defined as expenses which means that untaxed money can be used.
Some leases can be arranged to include specific benefits such as equipment servicing or the ability to make variable monthly payments.
Asset finance contracts are usually arranged over a fixed term. In some cases it will not be possible to end the contract prematurely and if it is then it will usually be an expensive option.
You will find that most asset finance agreements come with a fixed rate of interest. This can be costly if interest rates fall sharply. However rates could move in your favour so this can be a benefit in certain circumstances.
The total cost of repayments on asset finance are almost always greater than the cost of buying the asset outright. You should remember to include the tax benefits when comparing the two costs.
The lessor of an asset may require additional security depending on the financial standing of your firm. This could effect your company’s credit rating.