Investec Comment: Asset finance for startups: How it can help
MUCH of the discussion about small business finance focuses on the very early stages of a company’s life. Will a bank lend the money it needs for its initial stages of growth? If not, what other options does that firm have? What can be done to make it easier for very new companies to borrow? These are, of course, important questions, but they shouldn’t obscure the fact that companies need access to finance for the whole of their lifespans, and often their requirements will change as they grow.
One often overlooked funding method that can be useful in all of a company’s growth stages is asset finance. In very simple terms, it involves lending money to finance the purchase of an asset – whether a piece of machinery, software, a vehicle, or anything that the company needs to make money. It allows the business to pay back the facility from the revenues that the asset generates itself. And as the facility is backed by the asset, often the provider is able to take on greater exposure than a high street bank offering an unsecured loan.
This makes asset finance a useful tool for startups seeking funding. Since asset finance is accessed through brokers – who all tend to have their specialisms – it is possible to gain deals that closely match your funding needs. Brokers such as B2B Cashflow Solutions can arrange a wide variety of equipment finance to support you at every stage of business development. For example, if you are in tourism, you can arrange seasonal payments so that you pay less during the winter months, then upgrade or finance new equipment when your business grows.
Startups can access asset finance in the same way they would if they were applying for a loan or overdraft from their bank. You need a credible business plan, details of any prior experience and clarity around the purpose and amount of investment in the business.
While asset finance can be used for newly established businesses, it is just as useful for growing and more mature businesses. Taking on more staff, for example, increases monthly costs. Instead of using cash to buy new equipment – which will eat into cash flow – asset finance spreads the cost over time. As the company grows, the credit profile of the business improves. Therefore the number of funders willing to lend to the business will also increase, thereby giving them more options to enable further growth.
The important point is that asset finance is not just available for established companies, and there are countless asset finance solutions out there for a business needing equipment for expansion.
Martin Harries is head of sales at Investec Asset Finance. This article is provided for information purposes only and should not be construed as advice of any nature. The views and opinions expressed are subject to change without notice.