16 Jan Use Asset Finance Solutions to Fund Equipment Purchase
Do you need to replace existing equipment? Does a new customer order require equipment upgrades or expansion of capacity? If there is not sufficient cash available or you have plans to utilize the cash on hand for other purposes, asset financing may be a solution.
What is Asset Financing
Asset Financing is the process of providing funds to a company that is covered by some sort of asset. Much in the same way that a mortgage is secured by a home, equipment can be purchased and the equipment equity used to provide security for the loan. In addition, existing buildings and other equipment that is unfettered by loans may also be considered for security purposes.
There are many advantages to this kind of solution.
Access to modern advanced equipment is enhanced through this type of solution. Equipment that is otherwise not affordable can be utilized to meet ongoing corporate needs and improve the competitiveness of the company.
Cash flow is immediately improved since funds needed for a capital purchase are freed to be used in other areas. If a leasing arrangement is considered, the equipment may be returned prior to the end of the term of the contract following terms for early termination. Monthly payments provide a stable cash flow base to manage the companies overall cash flow situation.
What Equipment Can Be Considered
All types of construction equipment, manufacturing machinery, plant and buildings, printing equipment, agricultural farm equipment, computers, servers, software, vehicles, and existing capital equipment that is unfettered by existing loans can be used to provide security for an asset finance agreement.
There is a great deal of flexibility in the kind of equipment that can be used. The bottom line is that it must have real value on the market, it must be valued at current valuations and it must be able to provide security for the loan in question. The bottom line, like a mortgage on your home, if the company is unable to meet the obligations of the asset finance solution, they may forfeit the security to repay the loan.
What are some of the Accounting Issues to Consider?
As with all company decisions there are pros and cons to each. Company managers will make the right decision based on what works for their company. Leasing vs. purchase may impact capital depreciation claims for tax purposes. The actual cost of the item in question could be more expensive through an asset finance solution as compared to outright purchase. Evaluate contract termination requirements if there is a chance that you may need to terminate the contract early. Down payments may still be required with an asset finance solution.
The primary advantage to an asset finance solution is improved cash flow. Avoiding commitment of current account cash to purchase equipment provides much more flexibility for the company over the