Asset finance: An alternative source of funding for SMEs
Colin Swanston, Managing Director of the Transport Division of Close Brothers Asset Finance, reports on the importance of asset based lending to the SME market.
The Finance and Leasing Association recently reported that its members provided £110 billion of new finance to UK businesses and households with over £30 billion of finance provided to the private and public sector. This financing accounted for almost 32% of UK investment in machinery, equipment and purchased software in the UK.
Despite these impressive numbers, many small business owners are still unaware of the benefits that a well-structured asset finance facility can bring to their business. The route to finance is still, for many, through traditional channels, when considering investing in new equipment. As mainstream sources move further away from the traditional overdraft facility, it is now more likely that any headroom in the overdraft facility will be used to pay overheads and suppliers rather than be tied up in capital equipment.
Asset finance – A fast growing finance option
Access to finance is a common challenge for SMEs who can see the potential to grow their business but don’t have enough working capital to pursue the opportunities.
A key benefit of asset finance is that it offers an effective solution to this problem by spreading the cost of an asset over its useful working life. A well-structured hire purchase or leasing facility gives a business access to the vehicles, machinery or technology solutions they need without compromising cash flow.
Repayments can be structured to take account of seasonal cash flow fluctuations and hire purchase charges, while leasing payments can be offset against pre-tax profits. Additionally, there are no restrictions in the choice of supplier, and asset finance can be used for both new and second hand assets.
Refinance for faster release of funds
Looking more closely at the various finance products, Sale and HP back is a quick way to release cash against existing assets. The funds released can be used to expand a business, settle outstanding bills or to fund a deposit on a new piece of equipment or even premises.
A business has uninterrupted use of the asset and repayments are matched with projected income stream. Sale and HP back can be used to release cash regardless of whether an asset is already owned or is on finance with a different lender.
Acquiring a business using asset finance
In today’s financial market it may not always be straightforward to secure mainstream bank funding to acquire a new business. However, if the target company has a good fixed asset base consisting of vehicles, plant or machinery it may be possible to re-finance the assets of the target company to fund the acquisition. Obviously, timing is of great importance but with both vendor and purchaser and their respective legal advisers working together, it can be a workable alternative where traditional bank funding may not be available.
Find out more
About the author
Colin Swanston is the Managing Director of the Transport Division of Close Brothers Asset Finance based in Scotland. For over 30 years Colin has specialised in providing alternative asset funding to the Scottish SME Marketplace.
About the company
Close Brothers is a leading UK merchant banking group providing lending, deposit taking, wealth management services and securities trading.
Established in 1878, Close Brothers Group plc employ 2,900 people, principally in the UK, are listed on the London Stock Exchange and are a member of the FTSE 250. Our activities are straightforward. We remain focused on markets and services we know and understand.
Our approach is prudent and considered. We adopt a cautious approach to writing loans which, together with our prudent management of capital funding, ensures we can continue to lend in all market conditions.
We value our customers over everything else. We focus on developing long-term relationships, to fully understand our customers and their intricate business operations in order to support long term growth.
Our businesses have remained local. Our knowledge and experience allows us to provide an informed and valuable service whilst operating via a national network, allowing us to lend where others do not.
This blog is one of a series of articles from our commercial partners.
The views expressed are those of the author and not necessarily those of ICAS.