Bionic's guide to asset finance

Looking for help with your business finances? At Bionic, we can find deals on everything from asset finance to commercial mortgages. We compare financing options from a range of providers - including high street banks, challenger banks, and alternative lenders - and our team use smart technology to recommend the best solutions for your business.

What is asset finance?

Asset finance is a form of lending that enables you to kit your business out with equipment it needs without having to pay a big upfront cost. Some types of asset finance, such as hire purchase, finance leases and operating leases, let you rent this equipment over a specified period of time. Others allow you to buy the asset and make payments in installments. You can also use asset financing to release cash from equipment you already own.

What asset financing options are available?

If you’ve decided that asset finance is the right choice for your business, next you’ll need to think about which type you need. In the UK, there are a variety of asset finance options available, and the type you choose will depend on a number of factors. 

Do you want to acquire new equipment, or free up capital from existing assets? Would you rather rent or own the equipment? Do you want the asset to appear on your balance sheet? We know it can be tricky to wrap your head around how asset finance works, so here’s a little more information on the main options:

Hire purchase

With commercial hire purchase, you can acquire an asset and start using it immediately, spreading the cost over time by paying in installments. 

Your lender will buy a piece of equipment on your behalf and retain ownership of it. However, the full value will appear on your balance sheet, and you’ll be responsible for any maintenance and insurance. 

You’ll need to bear in mind the fact that business hire purchase involves higher monthly fees than some other asset financing options. But the bonus is that you end up owning the equipment at the end of the agreement. This kind of agreement is often used for higher value items, such as vehicles and machinery, that will still have a resale value when the hire purchase agreement ends.

Refinancing

If you’ve got plenty of assets but are in need of a cash injection, refinancing lets you release capital tied up in any equipment you already own. 

A lender buys an asset from you, and then leases it back. So, you receive a cash sum, keep the asset, and make a series of fixed monthly repayments over a specified period. This can be a quick way to free up working capital if you’re prepared to give up ownership of the asset in question.

Finance lease

A finance lease is one of two main types of agreement available for equipment leasing in the UK. (The other is an operating lease.) Finance leases offer the same benefits as a hire purchase agreement - minus the asset showing on your balance sheet. 

This means you can spread the cost of VAT over monthly repayments rather than settling the bill up front - a pretty attractive arrangement for any small business leasing equipment. Finance leases tend to be long-term arrangements that last for most of an asset’s life, but you won’t own the asset at the end of the agreement. Once the lease expires, you can either sell the asset and take a share of the proceeds, return the asset to the lender, or agree a further lease period.

Operating lease

This short-term asset finance solution is the second of the two main types of equipment finance (alongside a finance lease). It’s kind of like a typical rental agreement in that it offers all the benefits of leasing equipment without the need to commit to a long-term agreement. 

You’ll get more flexibility than you would with some other asset finance solutions and, as with a finance lease, the equipment won’t appear on your balance sheet. So you can use an asset for however long you need without making a long-term investment.

What can asset finance be used for?

Almost anything. If it’s considered an asset on a balance sheet, it can be subject to an asset finance agreement. That includes big ticket items such as plant machinery and vehicles - but also office equipment, fixtures and fittings, and software. 

You can use asset financing to get hold of both new equipment or second-hand assets, and also to release capital from items you already own.

What are the advantages of asset financing?

Firstly, it allows you to protect your cash flow, as you can avoid paying out large lump sums and split capital investments into a series of payments spread over time. 

Also, asset finance agreements tend to be quite flexible. They can be adapted to suit your company’s cash flow and any seasonal shifts in income. Another bonus is their predictability - this means you’ll know how much you’ll be spending in the months ahead.

What are the disadvantages of asset financing?

Because you pay interest to a lender, this can be more expensive than buying equipment outright. And while you won’t technically own the asset, you may still be responsible for maintenance and insurance costs. 

If you find you can’t make your monthly payments under an asset finance agreement, the lender will then be able to take the asset away.

How to arrange asset financing with Bionic

Your business is unique, so we’ll get the process started with a quick phone call to discuss your requirements. One of our agents will then use our smart technology to dig through hundreds of asset financing options to quickly find you the right solution.

Lenders will need supporting documents that show evidence of company turnover. You can upload these to your account or via Open Banking connection. Once that’s done, you can monitor your application in real time. 

Bionic’s iFunds platform allows you to apply for and compare a range of options. By allowing lenders to ‘bid up’ on your applications we can secure the best asset finance deals in the UK. 

Finally, when your application is approved, just leave it with us - we’ll handle all the documents and make sure you get your funds fast.