Possibly the most important foundation for any business to have is solid financial backup. Without the ability to access flexible funding as and when it’s needed businesses struggle to meet both their ongoing needs and take advantage of opportunities for expansion. One vital source of finance that many businesses take advantage of is short term asset finance, a similar product to a bridging loan in both duration and flexibility of application. Because this form of finance is adaptable and may be put to many different uses, asset finance can empower businesses to grow quickly and confidently.
In this article we’ll discuss the many different applications of asset finance and the ways in which it can help a business grow. Before deciding whether asset finance is the right choice, though, business owners must make sure they fully understand how a loan will affect their business by consulting a broker or financial adviser.
Asset finance is a form of funding which is typically provided by bridging lenders, and in many ways is similar to a standard bridging loan. Asset finance has many aspects in common with bridging loans, and allows borrowers to take out high value secured loans in a short space of time. This can be invaluable for businesses which need to expand or secure new equipment, and provides a vital tool in commercial trading.
As the name implies, asset finance is mainly used to fund the purchase of specific assets. This can vary widely, but is usually used to finance high-value equipment or vehicles; if a printer needs to upgrade their presses, for example, or purchase new delivery vehicles, asset finance can be used to provide funding. Bridging loans have been provided for purchases as diverse as high-spec software tools and warehouse space, and the uses to which it can be put are almost limitless.
It’s difficult for a business to make outright purchase most of the time. In commerce, money is best re-invested or used to pay running costs; very few businesses wish to keep reserves of capital on hand “just in case”, and usually plough what money they can straight back into the business. Because of this, businesses almost always need to seek finance options when they wish to expand, and asset finance is a vital tool for doing so.
Bridging loans for asset finance provide a uniquely streamlined solution for asset purchases because they present a quick, tidy loan. There’s no lengthy consultation process or strict criteria to meet, so if a deal needs to be closed quickly and with no fuss a bridging loan is an unparalleled solution.
A bridging loan is generally only a short-term solution (hence the name; these loans are intended to “bridge the gap” whilst long-term finances are arranged), but it is a highly valuable option for businesses. This is primarily due to the speed and flexibility with which bridging lenders are able to work; while a bank may measure the time from loan application to approval in weeks, bridging lenders work in days. In fact, many bridging lenders proudly declare that they can provide finances in as little as 7 days.
So how does this speed help businesses? Well, it means that they can act quickly and confidently when it comes to expanding, which is crucial for a growing business. Let’s say a haulage company is offered a lucrative contract for a major shipping chain - the deal is worth millions, and could put the haulers on the map, but they haven’t got nearly enough lorries. They’ll need to purchase some more vehicles, for which they need to borrow a lot of cash. A bank will take too long to approve their application, so they’ll either have to wait weeks to submit a bid (and risk losing out to other faster companies) or bid blindly and hope they can secure finance later.
With bridging finance, however, the haulage firm is able to quickly secure a firm commitment to lend. With the finances already in hand, they can submit a confident bid quickly, allowing them to secure the deal and move forward. Once the dust settles they are able to re-finance their new fleet of vehicles with a long-term asset financier and repay the initial bridging loan. By using bridging finance in this way businesses can move quickly when they need to, without needing to keep large cash reserves on hand or wait for long-term solutions to become available.
As with all bridging loans, asset finance loans are secured against the borrower’s collateral. In many cases this collateral will be the asset itself, but many lenders are flexible and will permit borrowers to supply alternative collateral as security. Since asset finance loans are secured, this enables the lender to repossess the borrower’s assets if they should fail to repay the loan in full (along with all interest), which anyone considering taking out a bridging loan should be aware of.
Asset finance may be arranged in several different formats, with different payment structures in place depending on the client’s needs. Typically a bridging loan will only run for between 1-12 months (though longer plans are available), with interest charged monthly. All costs of the loan may often be deferred until it’s repaid (known as “rolling up”), which minimises ongoing operating costs for the borrower.
Asset finance is a powerful tool which can enable businesses to reach far beyond their means and seize new opportunities. The ability to extend their commercial activities into new ground is hugely important for business of all types, and although ongoing asset finance is not always a part of every business’s strategy, the option to pursue it should never be far from the mind of every business owner.
A bridging loan is a short-term loan secured against property. It allows you or your business to “bridge a gap” until either longer-term finance can be arranged, or the underlying security or other assets can be sold.
A business bridging loan is a type of commercial loan that allows you to borrow money quickly over a shorter period than a typical bank loan but usually at a somewhat higher rate.
A business bridging loan can be used for a huge variety of different purposes. Most commonly they are used for major purchases such as property, for new equipment and machinery as well as to acquire stock. They can also be used as working capital and by new businesses that require a cash flow injection.
A vast majority of businesses will use property or land as security when taking out a bridging loan. There are however a small number of specialist lenders that are prepared to secure bridging loans against equipment, the value of unpaid invoices and projected future sales or even against equity in the business.