Investing in your business often means spending money before you see the return.

Perhaps you need another van to take on more work, new machinery to increase capacity, upgraded equipment to improve productivity or technology that will help your team work more efficiently.

The obvious option may be to pay for it using the company’s cash reserves, but just because your business has the cash available doesn’t necessarily mean using it all at once is the right decision.

Asset finance is another option worth considering.

What is asset finance?

Asset finance allows a business to obtain equipment, machinery, vehicles and other business assets while spreading the cost over an agreed period, rather than making one large payment upfront.

The finance is generally secured against the asset being purchased, which means the lender will take the value of the asset into account when considering the funding.

Depending on the investment, this can mean the asset is generating revenue or improving productivity while you’re still paying for it, rather than requiring a significant upfront cash payment.

It also means more working capital can remain within the business for other priorities, whether that’s paying wages, purchasing stock, taking on new employees or managing the gap between completing work and getting paid by customers.

There’s more than one way to finance an asset

Asset finance isn’t one particular product.

Hire purchase can allow you to spread the cost of an asset and ultimately own it. Leasing can provide use of an asset without necessarily owning it, while contract hire is commonly used for vehicles.

Businesses may also be able to refinance assets they already own to release cash for other purposes using products such as sale and leaseback.

The right structure will depend on the asset, how long you expect to use it, whether you ultimately want to own it and, importantly, the overall cost.

Look at the investment and the finance together

Before taking out finance, it’s worth stepping back and considering what you expect the investment to deliver.

Will it increase capacity? Save your team time? Reduce costs? Allow you to fulfil contracts you couldn’t otherwise accept? And will the additional cash generated comfortably cover the repayments?

It’s also important to consider the wider impact on your cash position. Paying for an asset outright may avoid borrowing costs, but it also ties up cash that could be used elsewhere in the business.

There may also be different accounting, VAT and tax implications depending on how an asset is acquired and financed, so it’s worth considering these before committing to an agreement.

We can help you look at the investment in the context of your forecasts, cash position and wider business plans, and explore the funding options available should finance be required.

Get in touch to arrange an informal discussion about how we can support you.