How asset finance can help your business grow and succeed

Asset finance is a funding option that allows businesses to acquire the assets they need to grow and succeed, without requiring upfront payment.

It has become increasingly popular among businesses in South Africa as it offers a viable alternative to traditional loans and other funding options. By using asset finance, businesses can access the equipment, machinery, and vehicles they need to operate and expand while conserving their cash flow for other important expenses.

What can you finance?

Asset finance can be used to finance a wide range of assets for a business. This can include equipment, machinery, vehicles, and even intangible assets such as software and intellectual property.

While we’ve already covered the basics of asset finance and listed some of the leading providers in the country, in this article we’re going to explore exactly how asset finance can help your business grow.

This is why asset finance is where it’s at

Asset finance can be especially powerful for smaller businesses as it allows them to acquire expensive assets that they may not have been able to afford otherwise.

By spreading the cost of the asset over time, businesses can conserve their cash flow for other expenses such as salaries, inventory, or marketing efforts. This is particularly important for small businesses that may not have a large amount of capital on hand to make significant investments.

Additionally, asset finance is often easier to obtain than traditional loans, as the asset being financed serves as collateral. This can be an advantage for smaller businesses that may have less established credit histories or limited access to funding options.

The benefits of asset finance

• Access to Expensive Assets: Asset finance enables businesses to acquire expensive assets that you may not have been able to afford outright. This can allow you to expand operations or upgrade equipment without requiring significant upfront costs.
• Improved Cash Flow: By spreading the cost of an asset over time, you can conserve your cash flow for other expenses such as salaries, inventory, or marketing efforts.
• Flexible Repayment Terms: Asset finance often offers flexible repayment terms, including longer loan terms, seasonal payment options, and balloon payments, which can be customised to fit your business's cash flow needs.
• Predictable Monthly Payments: Monthly payments for asset finance are usually fixed, which allows you to better manage your cash flow and budgeting.
• Tax Benefits: Depending on the type of asset and the financing structure, you may be able to deduct interest paid on asset finance loans from your taxes.
• Access to Working Capital: Asset finance can free up working capital that you can use for other purposes, such as paying salaries, purchasing inventory, or expanding operations.
• Easier Approval Process: Asset finance is often easier to obtain than traditional loans, as the asset being financed serves as collateral. This can be an advantage for you if you have a less established credit history or limited access to funding options.
• Maintaining Liquidity: Since asset finance does not require a large upfront investment, you can maintain your liquidity and use your funds for other investments or expenses.
• Keeping Up with Technology: Asset finance can enable you to stay up to date with the latest technology, which can be critical for remaining competitive in today's fast-paced business environment.
  Potential for Higher Return on Investment: By acquiring new assets through asset finance, you may be able to generate higher returns on investment over time, which can help you grow and succeed.

But, surely there must be some downsides, right?

The disadvantages of asset finance

• Cost: Asset finance can be more expensive than other types of finance in terms of interest rates and fees.
• Risk of asset depreciation: As the value of assets may decrease over time, you may end up owing more than the asset is worth.
• Ownership limitations: As the lender technically owns the asset until the loan is repaid, you may face restrictions on how you use the asset.
• Limited flexibility: Asset finance agreements may be inflexible, with limited options to change the terms of the agreement once it’s signed.
• Impact on credit rating: Failure to keep up with payments can have a negative impact on your business's credit rating, which can affect future borrowing options.

Here are some examples of how asset finance could help you grow your business

Upgrading equipment and increasing production capacity

A small manufacturing business was struggling to keep up with demand due to outdated equipment. With asset finance, they were able to purchase new machinery and increase their production capacity, leading to higher revenue and profits.

Expanding your fleet and ensuring the growth of the business

A courier company was looking to expand their operations by adding more vehicles to its fleet. Asset finance allowed them to purchase the additional vehicles they needed without draining their cash reserves. This helped the company increase their delivery capabilities and win more clients.

Renovating premises - growing a restaurant

A restaurant owner wanted to renovate their premises to create a more modern and comfortable dining experience for customers. With asset finance, they were able to fund the renovations without having to dip into their working capital. This helped attract more customers and increase revenue.

Asset finance can be a valuable tool if you’re looking to grow your business. It offers a number of benefits, such as increased cash flow, the ability to acquire assets without large upfront costs, and flexibility in repayment terms.

However, it's important to carefully consider the potential downsides, such as interest rates and fees, and to thoroughly review the terms of any financing agreement before signing.

By doing so, businesses can make informed decisions and use asset finance to achieve their goals. We have a list of asset finance providers that you may want to consider to help you decide on which provider will work best for you.