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What is the best way to finance a large business asset purchase?

PUBLISHED ON: 27/10/2023

How can I use asset finance to purchase a large business asset?

Asset finance is a type of funding that allows you to purchase expensive assets without using up business capital. The term ‘asset finance’ incorporates different types of funding, including hire purchase and refinancing.

The best option for you depends on various factors including whether you want to own the asset when the financing agreement ends. You may also wish to consider whether you have existing assets that you can refinance, which would give you a cash lump sum to make a new purchase.

How to fund a large business asset purchase

With so many forms of alternative finance now available to businesses at any stage of their journey, funding a large business asset purchase can be relatively straightforward. So what options might be available to you in this situation?

Hire purchase

A hire purchase agreement incorporates a pre-set number of repayments using a fixed interest rate. This offers the significant benefit of being able to budget effectively whilst also retaining vital business capital.

Hire purchase could be a good financing option for your business if you want to take ownership of the asset ultimately. You can do so with a hire purchase agreement once you‘ve made a completion payment at the end of the contract.

Asset refinancing

If your business already owns one or more expensive assets, you could unlock their value with a refinancing deal. This involves the lender buying the asset from you and then renting it back to your business over a fixed period.

You enjoy uninterrupted use of the asset and can use the money to make a new asset purchase. This is a low-risk option for lenders as they can retain the original asset to recover their money in the event of default, so you may gain access to some favourable terms.

Commercial property finance

Commercial property finance can help you purchase a property for your own business’s use or to rent out to other businesses, using owner-occupier commercial mortgages and commercial investment property mortgages respectively.

Owner-occupier commercial mortgages typically require a deposit of 25 per cent or more. Lenders will also typically look at the loan-to-value ratio, your business’s credit score, the type of property you’re purchasing, and potentially your personal credit rating, before sanctioning commercial property funding.

How to get financing for a large business asset

It’s important not to make too many applications for finance in a short timeframe as it will negatively affect your business credit rating. The safest way to get finance for a large business asset is to approach an experienced commercial finance broker.

UK Business Finance searches the whole of the market to find the best deals for our clients, and there’s no charge for our services. We’ll ensure that you don’t jeopardise your credit score and can even make the application on your behalf. Please get in touch with one of the team to find out more.

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