How to buy assets and save money
All businesses will purchase assets in one form or another, the big question is the way in which you fund them
With a bit of thought, you can free up much needed cash and also save yourself thousands of pounds when your company buys its assets. Let’s start by looking at any vehicles used in your business. This will range from the Director’s company car, whether held in or out of the business, through to vans on the road. While there are many options there are four main ways these are funded:
Cash - If the business can afford to buy vehicles for cash it shows you have got yourself in a good financial position. However, I would strongly recommend thinking twice about tying up important cash in assets. We have seen many businesses’ cash position change rapidly over the last couple of years and my experience shows that cash is best used financing cashflow and growth, not tied up in depreciating assets.
Business Loan - What was a quick source of funds will probably now need to go to a central credit underwriter, take a few days for a response, which may be ‘yes’ or these days more probably a ‘no’ and cost a lot more. What’s more, you are using up unsecured funding, which could be best used elsewhere.
Hire Purchase - You still source the vehicle, new or second-hand, and finance is secured against the vehicle. Once you come to the end of the term and all payments are met, the business owns the vehicle. This is normally now used for funding second-hand vehicles, people doing very high mileage or for vans that may get damaged in the normal course of business. This form of funding normally saves in the region of £1,000 over a business loan.
Contract Hire - This is the way most Director vehicles are now funded, you choose the vehicle you want and lease the vehicle over a set period including a maximum mileage. At the end of the term, you hand the car back and set up a new agreement for your next vehicle. For the ultimate in hassle-free motoring you can also include a maintenance package, which includes servicing of the vehicle. By using a broker rather than garage finance, you can typically save £1,000. Special deals are often available for this type of finance when discounts have been obtained from the manufacturer.
Funding can be sourced for a whole range of assets including cars, vans, HGVs, construction equipment, computer hardware and much more. When starting a business or expanding, if you have requirements to fund assets and equipment it is best to fund these using asset finance and not tie up traditional bank finance, which is more expensive.
What’s more hire purchase and contract hire funding solutions are easier to access than traditional bank finance, which means you are more likely to be able to raise finance and, therefore, realise your business dream. With so many options available for funding it’s best to get a second opinion from a broker before signing with a bank or supplier.
Written by Liam Walker, Director of Anglia Finance
Anglia Finance assists clients to secure commercial mortgages, business loans and works closely funding the franchise market.