How Can Assets Be Funded?

Companies’ existing inventory can be a useful tool for funding new assets and securing short-term access to finance. A common method for obtaining assets is through asset financing, which can help businesses secure loans based on the assets they own rather than their perceived creditworthiness.

What is Asset Financing?

Asset financing, or asset-based lending, is when a business uses its existing assets as collateral to secure financing. The assets used as collateral can be tangible, such as inventory and machinery, or intangible, including accounts receivable and intellectual property.

Typically, asset financing is suited to businesses in industries with high inventory turnover or valuable assets. It can also be a valuable tool for startups and larger companies seeking to grow or manage their cashflow challenges.

Using asset financing can unlock vital benefits, including:

• Access to capital, regardless of credit history or cash flow.
• Improved flexibility compared to “traditional” bank loans.
• Faster approval than standard loan processes.

How Does Asset-Based Financing Work?

Asset financing provides organisations with two options. They can either use their assets as collateral to secure a loan or to finance and purchase the assets they need.

Businesses can fund an asset purchase using this five-step process:

Step 1: Assess Your Needs and Financial Standing

Before considering funding an asset purchase, you need to:

• Determine the asset you need and its costs.
• Analyse your cash flow situation and the intangible and tangible assets you have.
• Consider your long-term goals to decide whether it’s the right choice for your business.

Step 2: Explore Financing Options

The next step is to explore the different methods for funding an asset purchase, which include:

• Asset-backed loan: The most popular option, requiring you to use an asset as collateral.
• Sale of receivables: Selling outstanding invoices to a lender for immediate access to cash.
• Securitisation: Requires you to pool assets, such as loans and mortgages, and issue securities backed by cash flow.
• Distributor funding: Financing offered directly from equipment distributors.
• Equipment funding: Standard financing methods are used for equipment-specific purchases.

Step 3: Compare and Choose the Best Option

With those options assessed, you need to understand the opportunities you have to gain funding, including:

• Compare different interest rates and the fees associated with each financing option.
• Determine which repayment schedule aligns best with your cash flow projections.
• Check whether the financing offers flexibility regarding early repayment or payment adjustments.
• Review the terms and conditions carefully to understand the financing agreement.

Step 4: Apply for Financing

Once you’ve compared the different finance options, you can apply for financing. But first, ensure you have all the required documents for the loan. This may include financial statements, business plans, asset valuations, and more depending on the lender.

Step 5: Manage Your Financing

Finally, if you’ve received financing, ensure you make timely payments, closely monitor your finances, and communicate with your lender if you encounter any difficulties. This is a guaranteed way to mitigate any risk of penalties.

How Do Companies Finance Their Assets?

Companies typically finance their assets with asset-backed financing, which involves leveraging their current assets as collateral. These can be physical or non-physical assets, such as equipment, intellectual property, inventory, outstanding invoices and real estate.

Assets can be funded in several different ways. You don’t necessarily need credit; you can also use collateral in the form of tangible or intangible goods, which provides freedom when it comes to asset financing.

Fund Your Assets With Hectocorn

Whether you’re looking to purchase luxury assets or grow your business, you need a financial service provider that understands the market and your specific requirements. Hectocorn’s team of experts, bespoke finance solutions, extensive experience, and curated network of lenders enable us to broker competitive rates for all your asset financing needs.

Discover how Hectocorn can support your financial journey by emailing us at [email protected].