Most small business go to their banks when they need capital to new equipment or technology (the asset). However, there are other options to finance an asset. Here are the top 3 differences between using asset finance vs commercial bank loans to finance equipment.
Asset finance requires some form of security over the equipment that is being acquired. When you purchase a vehicle or equipment under asset finance, the asset is the only physical security for the bank loan. In the case of a commercial bank loan, the equipment may be secured over property, term deposits or by way of a floating charge over your entire business. On the other hand, asset finance is a lot less restrictive on your personal or business assets.
Asset finance terms typically have a set period – 2 to 5 years, and in some special cases up to 7 years. Unlike commercial banking, such as line of credit. A set repayment term can contain the overall interest cost for the life of the loan. NB: In the case of a Rental product, the term is defined by the period of the equipment’s use.
The repayment structure of an asset finance facility is flexible enough reflect your annual cash flow – high and low income period during the year. However in most cases the facility is structured with equal payments and possibly an end residual or final “balloon” payment – lowering the monthly payments.
For more information about commercial asset finance, contact us.