Finance Focus
vehicles to help it grow and reach new locations, asset finance may be a more natural fit because the agreement can be structured around the value of the new vehicles and their expected working lives.
If there are several reasons a business needs an injection of finance, or if there is no one physical asset involved, a business loan may offer greater freedom. Below are three practical questions that a business comparing asset finance vs business loans needs to answer. 1. Is there a specific asset involved? If the answer is yes, asset finance should be considered early rather than treated as an alternative only after a loan has been explored. 2. Will the asset help generate income or improve efficiency? Asset finance often makes sense when the asset can start to contribute to the business’ operations or bottom line while it is being paid for. 3. Is the funding need broader than one purchase?
A loan may be more suitable if the money needs to cover several areas of the business.
When asset finance is usually the better fit
Asset finance is often well suited to businesses that know exactly what they want to purchase but want to avoid a large upfront payment for it. This might include:
• A farm investing in harvesting machinery ahead of a busy season.
• Logistics firms adding EV vehicles to their fleet to meet ESG targets.
• A bar or restaurant chain replacing old ovens or dishwashers with newer models.
In these situations, the asset isn’t just a purchase but something that ensures a business can deliver its goods or services and remain competitive. The main advantage of asset finance is that the business can access the asset sooner and then spread the cost of it over time. In many cases, the asset can also begin to pay itself back as it’s being used and contributing to a business’ income.
Asset finance isn’t necessarily cheaper or easier, but it’s the
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stronger option when the asset has a clear business purpose and can be connected to productivity.
When a business loan might be more suitable
A business loan can be a more suitable option if the funding need isn’t centred on one piece of equipment. For example, a business may need working capital to manage a short-term cash gap while they wait for invoices to be paid. Or they may have the latest equipment but their premises aren’t built to accommodate it properly, so they need a loan to create a suitable
working environment.
In any of these instances, the flexibility of a business loan can be useful because there isn’t a restriction on where it can be invested. Loans can also be more appropriate when the business needs a single pot of money to manage a multi-faceted project. Opening a new site, for instance, may involve recruiting new staff and hiring contractors to manage the fit-out all at the same time. Asset finance might help with the equipment within the new premises but would struggle to cover the full funding requirements.
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