• December 11, 2019

The business value of asset finance

The business value of asset finance

The business value of asset finance 1024 683 Jonathan Goldberg

Jonathan Goldberg, CEO of Preference Capital

In this challenging economic environment, companies are looking at more innovative ways of managing cash flow while still delivering on business growth requirements. One such way is to embrace asset finance as a strategy to move from a costly Capex model to a more affordable Opex-based one.

It seems a long time ago when companies splashed out capital on business assets unnecessarily. And while this was never a good long-term strategy, tightening budgets have turned the focus from buying assets outright to renting them. Instead of increased capital expenses (as a result of outright asset purchases), rental payments are operational costs. In some respects, they can be positioned in the same way as marketing expenses are. And, perhaps most importantly, these are tax deductible resulting in a 29% savings straight from the start. As mentioned in a previous blog, instead of having company capital tied up in an asset, it gets freed up to use for other revenue-generating opportunities or just to build reserves to be used as buffer during times of crisis.

Flexibility prevails

In certain circumstances, companies will have the option to opt to go with either an equipment provider who manages its own rental finance or a third-party rental finance specialist. In the case of the former, the provider can offer such elements as insurance, maintenance, services, and the finance itself as part of the agreement. For example, Mobile Macs and the delivery bike rental business of Preference Capital. For the latter, the company remains responsible for all the ‘value-adds’ and only uses the finance specialist to deliver the funding structure required to purchase the asset outright.

Irrespective of the provider used, a business does not have to be of a certain size or operate in a specific industry sector to access finance. This means that SMEs do not have to be concerned with onerous (and invasive) questions from traditional lending providers, i.e. banks. If the company selling the product also provides leasing options, then the business can negotiate payments directly instead of relying on a middle-man, saving significant costs in the long run.

If the company is in breach of its agreement with the bank, the financial institutions might decide to withdraw an overdraft facility putting the organisation at risk. However, in the case of alternative finance, the provider is generally more responsive and willing to assist if there is a problem with payment.

And if the company decides on not buying the asset outright, the equipment provider can provide more competitive rates on the product as it is also the manufacturer or supplier of that product, resulting in more cost savings for the business. And because of its flexible nature, a company can easily upgrade or replace equipment by making small adjustments to the monthly premium.

As economic uncertainty continues, going the asset rental route has become the status quo for the foreseeable future. Its business benefits provide organisations with a more nuanced way of managing assets while freeing up much-needed capital for growth.