This guide predominantly focuses upon business-to-business purchase financing solutions, as opposed to consumer finance solutions.
In 2022, there were 6.2 billion payments made by businesses in the UK, of which 3.5 billion of those were made from business to business.
As British businesses are looking to survive and thrive in the post-pandemic marketplace, many are turning towards financing their larger business purchases.
If you are looking to provide finance to your business customers, this guide is for you.
5 Advantages of offering finance to your business customers
- There can be tax benefits for customers buying via finance, as finance lease rentals can be tax deductible against profits – however it is always important to stress the need that the customer does their own research and request their own tax advice
- The customer does not need to pay major upfront costs, although there might be a need for a deposit in certain applications
- Asset finance repayments are fixed, which offers predictability when it comes to budgeting and forecasting
- Applying for asset finance as opposed to using existing lines of credit such as an overdraft can protect these for other requirements
- Asset finance enables businesses to upgrade their equipment or purchase new machinery, whilst maintaining short-term capital
Types of Business Finance you could offer
Asset finance
Asset finance is a type of commercial finance that is regularly used by UK businesses to acquire equipment, vehicles and machinery.
It allows businesses to purchase assets without having to pay the full purchase price up front.
How does asset finance work for the buyer?
The business looking to purchase something via asset finance will use an asset on their balance sheet to act on the collateral required to secure the loan. For many asset finance applications, the asset itself will act as the collateral. For example, if a farmer is looking to buy a used tractor on finance, the lender may consider the tractor itself as the suitable collateral.
In more challenging asset finance applications, extra collateral may be required.
The borrower will then make monthly repayments over a set period of time, covering the principal and the interest.
At the end of the repayment period, the borrower can pay an option fee to purchase the asset outright. Until this point, the finance company will own the asset.
Is asset finance an attractive option to buyers?
Asset finance enables businesses to avoid large upfront costs, freeing up cash flow whilst empowering the business to grow.
The attractiveness of asset finance to a potential buyer will likely depend on the interest rate and repayment terms they are offered from the lender.
Regarding asset finance eligibility, all forms of business are eligible, whether sole traders, partnerships, limited companies and even start ups. However, the business will need to be able to meet the financial commitments of repaying the loan.
What is the interest rate for asset finance?
The interest rate offered to potential customers is subject to their own financial situation. Should the applicant have a strong credit history, a track record for repayments and a valuable collateral, they will likely be offered a more competitive interest rate and repayment terms compared to an applicant with a more challenging credit history.
How does offering asset finance to your customers work for you as a business?
The primary benefit of offering finance to your customers is to maximise your sales, both in the short term and in the long run. At the time of transaction, by offering finance you will help to attract and convert customers who would not necessarily have the financial capabilities to purchase the asset outright. Over the longer term, as the customer is paying for the item monthly, you have the opportunity to maintain closer contact with the customer, increasing the likelihood of keeping them as a customer for future purchases or upsales.
Do you want to offer asset finance to your customers?
The easiest way to offer asset finance to your customers is to partner with a commercial finance broker. This way, they will be responsible for brokering the asset finance application, which is often a difficult and cumbersome process. By using a specialist broker, you will maximise your customers chances of securing the necessary asset finance, and therefore completing the purchase with you. The broker will understand the intricacies of the asset finance application process, and help to put together the strongest business case for the application. The better brokers will also have access to financial products not available on the high street, these might offer more competitive repayment terms or interest rates.
If you would like to start offering asset finance to your customers, book in a discovery call with one of our team below, who will run you through your options and discuss the feasibility of offering finance to your customers.
