Finance for the Acquisition of Assets

Finance for the Acquisition of Assets

It is possible for you to raise finance on the basis of an asset which acts as its own security, e.g. on property or equipment. With such asset finance the purchase price of the asset is borrowed and repaid over a period, in theory representing the useful life of the asset. The lender has the asset as security and can recover the residual value if you default on repayment.

The main attraction of asset finance is the tax treatment of capital allowances, i.e. tax benefits on the acquisition of certain assets allowing part of the cost to be set against trading revenue to reduce taxable profits. Capital allowances will either be claimed by you to set off against your trading profits or by the supplier/financier in which case you benefit from lower instalments. Asset finance obviously also allows you to acquire assets and repay the cost from revenue without using other capital resources.

If you borrow to finance the cost of buying a business asset, the choice of finance tends to depend on the type of asset and the nature of the funding required. High street banks can accommodate most types of asset finance but there are other specialist sources. These specialists may be more competitive because they are able to provide tailored packages designed specifically for the borrower or because they are willing to assume greater risks (for example ,where they are relying on their experience to assess the residual value of the assets). Equipment suppliers themselves can frequently offer or arrange asset finance packages at competitive rates.

Check your bank loan documentation. It may contain a negative pledge which restricts your freedom to go elsewhere to obtain such finance without your bank's consent.