There are challenges that come with running a business, one of the most common is how to manage your finances
This can be particularly hard for start-ups, and younger businesses as they won’t have as much capital behind them to invest back into their company. This is where asset financing can come in useful. It is a way of securing additional funds against inventory, equipment, and investments – and if you are struggling to be approved for a traditional loan, this short-term solution could be the best option for your business. Below, we’ll look at this finance option in more detail, along with the pros and cons.
Other short-term solutions like a payday loan can be a good option for those that need cash quickly, whether you’re faced with an emergency or an unexpected expense – you can have access to cash when you need it most.
Business asset finance
There is a variety of different ways that you can finance your business, but have you heard of asset finance? This is a short-term solution for businesses that may be struggling with cash flow issues and are unable to pay their bills as a result. When a company utilizes asset finance, its own investments or inventory are used as a way of securing money in the form of a loan. It is an easy way to fund your business, to give you that extra bit of wiggle room when it comes to cash flow.
There are two options when it comes to asset finance, the first is when a company uses finance to secure equipment, machinery, or property for their business to use over a set period. They will make regular repayments to a lender for the length of the contract. The second way of asset financing is as mentioned above when a company uses its assets as collateral for securing a loan. Both can be good alternatives to traditional means of finance. Here are a few of the advantages and disadvantages that you may find with asset finance.
- Easy to obtain: This type of finance is great for companies that may not have the credit score to be approved for a traditional loan. The application process for loans can be long and lengthy, asset financing lenders tend to make quick decisions.
- Fixed payments: Making the same repayment every month makes paying back your asset finance easier to manage and paying in more affordable chunks means you’re less likely to miss repayments.
- Free up cash flow: Many companies use this type of finance to help them when they’re struggling with cash flow as a useful short-term solution that won’t land them in debt like traditional loans.
- Risk of loss: When securing funding against assets, there is always a chance that you might lose valuable assets if you cannot make the repayments. You should make sure the repayments are achievable for your company so you can avoid losing the equipment or inventory that you need to run your business.
- Short-term: This type of financing should only be used as a short-term solution, so may not suit various business models.
- Varying valuations: The value of the asset you decide to use to secure the loan may vary depending on the lender, so you should be prepared to receive low valuations.
Who can benefit?
Before securing this type of loan, it is important that you take the time to research and think about whether it is right for you. It is one of the many short-term funding solutions available that can be used to support start-ups and new, growing businesses to allow them to operate and maintain cash flow. However, you can also use it as a solution if you are struggling to pay employees or suppliers. In general, this type of finance is great for younger businesses and can give them the flexibility they need to run their business, and for companies that need to increase their working capital.