Commercial and Asset finance: Empower your business with the right funding.
There are several types of commercial and asset finance, so make sure you know the differences. Then you can decide which one will suit you.
As a business owner, you may require extra capital to manage your cash flow or to purchase new equipment. Commercial loans and asset finance are two options available to help meet these needs. Understanding the differences between them can help you determine which option is best for your business.
WHAT IS COMMERCIAL FINANCE?
Commercial finance is an umbrella term for different types of loans that are designed to help manage your capital and cash flow.
The following are some of the most common types of commercial loans:
Business overdraft
This allows you to overdraw your existing business account up to an approved limit, with the lender charging interest on the overdrawn amount. Businesses often use overdrafts to cover cash flow gaps.
Line of credit
This is a long-term arrangement between a business and a lender, where the business can access funds up to an approved limit. The business may borrow all or part of the money at any time, but only owes interest and makes repayments on the amount used. This option offers accessibility and flexibility.
Term loans
This involves a business borrowing money and repaying the lender in set amounts over a set period. This is a good option for businesses that prefer predictable repayments.
Commercial rate loans
Also known as business market loans, this type of loan involves a business borrowing a single loan amount that can be spread across a combination of components, such as floating rates, fixed rates, and cap rates. This helps protect against interest rate movements.
Cash flow finance
This option allows a business to get cash before their customers actually pay. There are two common methods used by businesses: invoice discounting and invoice factoring.
WHAT IS ASSET FINANCE?
Asset finance, on the other hand, includes a range of different loan structures that can help your business buy vehicles or equipment.
The following are some of the most common types of asset finance:
Chattel mortgage
Also known as an equipment loan, this option involves a business borrowing money to purchase an asset. The business owns the asset outright, but the lender uses the asset as security until the business repays the loan. This frees capital and ensures the business has security against the loan.
Hire purchase
The lender purchases the equipment and rents it to the business. At the end of the term, assuming all payments are made, the business takes ownership of the asset. This is a popular way to spread the cost.
Finance lease
The lender owns the equipment, and the business pays a hire fee for use. In some cases, the business may be able to purchase or refinance the asset at the end of the set term, which gives flexibility.
Operating lease
The lender owns the equipment, and the business pays a hire fee for use. The business does not take ownership of the asset. The costs are deemed operational expenses.
In conclusion, whether you need to manage your cash flow or purchase new equipment, there is a loan option available to suit your business needs.
Unlock the potential of your business with the right financing solution. Get in touch with Alecto Finance today to explore our range of commercial and asset finance options and let us guide you towards a brighter financial future.
Want to learn more? Talk to our brokers today!
