Asset Finance simply refers to the use of the assets in your company’s ledger, like invoices, short-term investments and inventory to obtain additional capital or to secure new assets like machinery. The assets are kept as collateral by the financing companies and loan is provided on an interest payable by the business owner. As compared to conventional means of finance this is a revolutionary way to raise fresh capital for your organization without being overburdened by debts.
Benefits of Asset Financing
Benefits of Asset Financing
1. Lack of Debt
Regular means of financing like loans and overdrafts can introduce fresh capital in your business, but not without burdening yourself with more debts, hampering your cash flow. Making use of Asset Finance simply frees up the money you have invested in an asset, so you can buy new machinery or introduce fresh working capital without adding more bulk to the credit in your ledger.
2. Improved Cash Flow
By introducing fresh capital in your business and freeing up unpaid cash from your receivables can essentially improve your cash flow. An improved cash flow can essentially boost the functioning of your organization and helping your business anchor itself in a constantly changing market.
3. Taxation Benefits
When you lease out your assets, they are termed as expenses in your ledger and help you save on your taxes. The untaxed money can then be used more freely in business expansion.
With the above mentioned benefits of Asset Financing, it becomes an obvious choice for securing short-term capital for your business. But one should be careful when opting for asset financing as it comes with its fair share of cons and disadvantages.
Asset refinancing is sort of like remortgaging a house that you just bought so that its equity can help you fill the financial gap in your budget. When you buy an asset through the capital secured by asset financing, your money gets tied and your cash flow depreciates. Asset Refinancing can help you free up the capital from the tangible assets like equipment and machinery allowing you to improve your cash flow. Like Asset Financing, refinancing can help you secure that much needed cash injection to improve your organizational workflow and helping in business expansion.
Difference from Asset Financing
While both sound the same, they are essentially different. Asset Financing refers to the borrowing of a short-term loan against your short-term securities and receivables as collateral, in order to secure additional assets. Asset refinancing on the other hand, is used to secure a loan against the assets you have bought by the capital you already own or have purchased. Asset refinancing comes after you have already secured capital through asset financing. While asset financing is used to purchase additional machinery, refinancing is used to secure a second loan against the machinery that your company already owns. Apart from the benefits of asset financing, refinancing provides the business owners with several additional benefits.
Benefits of Refinancing
1. Pay Debt in Less Time
If you have secured a 30 year loan for machinery, you can easily re-mortgage the machinery for 15 years so that your loan can get paid in a shorter amount of time. Asset refinancing can essentially help you grow your business without being overburdened by the debts.
2. Lower Interest Rates
The major benefit of Refinance is the lowered interest rate in your mortgage or loan. Paying a lesser interest on your payments can free up more cash to be used for the business and savings.
Nevertheless, one should do proper market research and analysis before considering any of these two options. Several organizations might penalize you for paying off your mortgage earlier than expected, so make sure you do proper inquiry before planning on the use of Asset Finance or Refinance.
About the author: Luke Peters is the content contributor for several websites and blogs related to finance, marketing, trading and management. He is an avid reader of books and other material related to financial management and business planning and likes to keep up with the latest news and developments in the respective fields.