Asset finance allows you to rent or lease equipment instead of buying it outright. This is a flexible alternative to a traditional bank loan for purchasing vehicles, machinery and other fixed assets. There are many benefits to asset finance which can help your business's cashflow. This guide explains asset finance in 3 easy steps:
To buy all of your equipment outright is a costly exercise which means you need a lot of capital to do it. By leasing your equipment it takes the strain off your cash reserves by paying a set monthly amount and choosing options to suit your cash flow. Most assets depreciate, meaning they lose value over time, making it hard to get your money back when you sell it. Because you don't own it, you can upgrade regularly making sure your business always has the latest and best equipment.
You can generally use asset finance for any fixed asset. 'Fixed assets' doesn't just cover things that are nailed to the floor, but includes equipment, machinery, furniture, computers, technology, vehicles etc. It will usually fund anything that is tangible and won't be converted into cash (ie stock).
Asset Finance payments are a business expense that can be written off against your taxable profits, meaning less tax for you to pay. If you were to buy outright you can only write down the depreciation and loan interest, which is often less than your lease payments. This means asset finance could lead to a lower tax bill at the end of the year. VAT is payable on the rentals, not the purchase price which gives an immediate cash flow boost. You can reclaim this VAT, helping your cash flow even further (note that special rules apply to cars).
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