What is Asset Financing?

Asset financing is the use of a company’s balance sheet to raise capital. In other words, it is a type of financing that allows a company to borrow money using its assets as collateral. It is a flexible form of financing that can be used for a variety of purposes, such as funding working capital, expanding operations, or acquiring new assets.

In asset financing, the company uses its assets, such as inventory, receivables, machinery, or short-term investments, to secure funding. If you are looking for a way to finance your business, then asset financing may be the right option for you. Keep reading to learn more about this type of financing and how it can benefit your business.

asset financing

Understanding Asset Finance

Asset financing involves using assets as collateral to get funding from banks and other financial institutions. It’s used to get a short-term loan or working capital. In most cases, companies use their account receivables to get funding, but it’s not uncommon to use inventory.

Types of Asset financing

There are several different types of asset finance, each with its advantages and disadvantages. The type of asset finance that is right for your business will depend on your specific needs and situation. Here are some of the most common types of asset financing:

Hire Purchase

In a hire purchase, the lender will purchase the asset on behalf of the borrower. The borrower makes payments to the lender over time. Until the borrower pays the loan in full, the lender owns the asset.

The borrower has the responsibility to maintain the asset, and they can’t sell it until the term ends or the finance agreement states so.

Equipment lease

Equipment leasing is a type of asset finance that allows businesses to use an asset for a set period without owning it. At the end of the lease, businesses have the option to purchase the asset or return it to the owner.

The business owner enters into a contractual agreement with the equipment owner to use the item and pay an agreed amount until the contract ends.

Finance lease

In this kind of lease, the lender buys the equipment and lends it to you at an agreed-upon fee. You will make monthly payments until you cover the cost plus the interest. The borrower is also responsible for the insurance and maintenance of the equipment. At the end of the lease period, you have the option.

Asset refinance

Asset refinancing involves securing a loan by pledging your business assets as collateral. The bank or financial institution uses assets such as receivables, inventory, and machinery as collateral to lend money.

The lender checks the value of the asset and creates a loan based on the assets pledged.

Operating lease

An operating lease is similar to a finance lease, but it’s only used for specialized equipment that a company wants to use for a short period. You will need to make regular payments for the equipment. The advantage of this kind of lease is that you can upgrade the equipment regularly.

Contract hire (vehicle asset finance)

Contract hire finance, or vehicle asset finance, is for companies that don’t want to take on the work of fleet maintenance. It’s strictly for vehicles. The financial provider finds and maintains the vehicles for the business and pays an agreed amount over the lease period. At the end of the lease period, the provider takes up the responsibility of disposing of the vehicles.

Difference between asset financing and asset-based lending.

Asset financing and asset-based lending are essentially the same thing, with a minor difference. Asset-based lending involves borrowing to buy a car or home, and the home or car serves as collateral. If the borrower defaults on paying the loan, the lender may seize the home or the car.

On the other hand, asset financing involves using the assets to qualify for a loan, but they are not used directly as collateral. Businesses use asset financing to get short-term funds to cater to things like paying salaries.

Secured and Unsecured loans in asset financing

Secured asset financing involves borrowing by pledging the assets of a business. The lender considers the asset worthiness instead of the creditworthiness of the company. If the borrower defaults, the lender may seize the assets.

In case the borrower goes bankrupt, secured creditors will receive more than unsecured creditors. This makes secured loans cheaper than unsecured loans.

Unsecured asset financing does not involve collateral, but the lender may lay a claim on the company’s assets.

Advantages of Asset Financing

  • There is no upfront cost.
  • Gives you quick access to business assets
  • It gives you free capital you can use on other business operations.
  • Manage your cash flow with ease as the repayments are fixed.

The Disadvantage of Asset Financing

  • You risk losing important assets you need to run a business.
  • It’s generally more expensive, and you may end up paying more than the value of the asset.

Asset Finance Loans Kenya – Best Asset Bank Loans

BankFeatures
Family bank asset finance·       Receive up to 80% financing for brand new vehicles.
·       Loan repayment period of up to 4 years for brand new vehicles
·       Up to 70% financing for used commercial / personal vehicles.
·       Loan repayment period of up to 3 years for used commercial / personal vehicles.
·       Up to 60 % financing for used PSV vehicles.
·       Loan repayment period of up to 2 years for used PSV vehicles.
·       Minimum monthly income for eligibility – KES 10,000
·       Low minimum loan amount
·       No maximum loan requirement
·       Insurance for vehicles / equipment will remain comprehensive for the period the asset is under finance, unless exceptions are sought
·       Repayment period from 1 to 4 years
·       Insurance premiums financing
CO OP Bank asset finance·       Financing of all types of moveable assets such as laptops, computers, printers, saloon cars, pickups, tractors, prime movers, school buses, generators and even medical equipment
·       Financing of up to 80% for both new and second hand assets
·       Competitive pricing in both local and foreign currency
·       Flexible repayment period of between 60 to 96 months
·       Automatic reminders of insurance expiry

Asset financing is a type of financing that allows businesses to purchase or lease equipment, vehicles, or other assets. Asset financing can be a great way for businesses to get the equipment they need without having to pay for it all upfront. To get the best rates for asset financing, be sure to shop around and compare rates from multiple lenders.

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