Why asset finance?

SMEs are the backbone of the UK economy. They’re responsible for a third of UK employment and turnover and make a big contribution to communities by offering local job opportunities and skills development. 

Running a business is challenging and, as a result, business owners are often good at many different things. But there’s one thing that none of them can do and that’s predict the future.  

If things are going well, should they spend the money they’ve made on new assets and upgraded machinery, or keep the money stashed away just in case there are fewer customers next year? Concern about cashflow and future trading prospects can often impact confidence when it comes to investment. 

But the decision doesn’t have to be spend or save. There is a third way in the form of asset financing. This is when a finance provider helps your business purchase new assets or equipment, using the asset as security. In return, you make repayments to the provider over a set time period, usually with a small amount of interest.  

Asset finance (also referred to as leasing or hire purchase) has helped millions of business owners to manage their cashflow, budget more effectively and avoid the dilemma of tying up capital that might be put to more productive use elsewhere, or earning interest in a savings account.  

Used proactively, intelligently, and in conjunction with a long-term investment strategy, leasing has the potential to help a business improve its profitability by allowing it to spread the cost of revenue- generating assets over several years. It allows the business to acquire assets that can improve productivity, efficiency or drive down costs. 

It’s often said that if an asset is going to appreciate in value, buy it. While if it’s going to depreciate, you should lease it. With the pace of innovation and new, improving technologies being introduced all the time, leasing assets gives SMEs the opportunity to get the latest equipment or vehicles as they come to market, instead of being stuck holding an asset that is losing value and is less productive for the business.   

Asset finance helps a business owner to purchase an asset with a much lower initial capital outlay and spreads the cost (therefore limiting cashflow implications) over a number of years. Choosing leasing over outright purchase frees up capital for the business, giving it the option to invest in other areas such as skills training, research and development, or sales and marketing. Leasing can also reduce the risk of technological obsolescence by aligning repayments to the useful economic life of the asset.  

Asset financing isn’t for everyone of course, and it’s important to acknowledge that it creates a debt commitment. Repayments must be met on time from a business’s trading cashflow. However, it remains one of the most powerful levers for SMEs to invest for the future, improve productivity and create opportunities for growth. 

At Allica Bank we are passionately committed to supporting the ambitions of UK SMEs, so whether you're considering investment in new commercial vehicles or looking to upgrade your existing machinery, we’d be delighted to explore how we might help you finance those plans.  

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