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Leasing, hire purchase and structured debt provide additional, flexible and committed sources of finance for a business.

In the current economic climate working capital optimisation is top on every Treasurer’s agenda. When looking into unlocking cash and powering growth, asset finance can make all the difference. Lombard’s managing director, Alexander Baldock, explains how asset finance can help with the cash flow and preserve working capital, and why capital investment, and in particular asset finance, is the lifeblood that will sustain Britain’s recovery.

A significant boost to capital expenditure is desperately needed in order to stimulate the economic recovery in the UK. “Investment in capital assets stalled during the downturn and is now picking up – this growth must continue, and the asset finance industry has an obligation to support this growth”, Baldock points out.

However, very often businesses acquire assets without being fully aware of the impact the financing method they choose has on their cash flow, tax and VAT liability, credit status, or bank exposure (especially in times of lean trading). This is where lending in the form of asset finance can help businesses avoid having to draw on cash reserves that may be needed elsewhere in the business and – by freeing up the value within the asset – it can help optimise the company’s working capital. 

Asset finance has more to offer
Everyone is familiar with asset finance for cars and vans. The finance provider can simply purchase the asset from the customer and lease it back, releasing the capital which can then be reinvested appropriately within the business.

But there are still companies that may not realise that the same funding mechanism can also be used for other asset types. They may choose to fund business assets such as technology or machinery with an outright, upfront cash purchase without realising the potential impact this may have on their company’s financial stability. Is the company prepared to face an unexpected change in market conditions, or a severe depreciation in the asset value? Will it always have the financial reserves to cope, whatever the economic weather?

“This is where asset finance comes in” says Baldock: “Leasing, hire purchase and structured debt provide additional, flexible and committed sources of finance for a business. They give more control over cashflow, and preserve working capital. Furthermore, asset finance can reduce the total cost of using an asset. We can help businesses take away cost, risk and hassle, and give owner-managers the confidence to spend their time focussed on their business, knowing that they have secure funding behind them.”

Unlocking cash rather than ‘locked in’ debt
Despite the growing popularity of asset finance there is still a common perception that committing to a financing solution involves becoming ‘locked in’ to a long term debt owed on an asset that will just depreciate in value, leaving the business with a greater debt owed on the asset than it is worth. “The reality is that different forms of financing will suit different types of assets, and an intuitive funding provider will ensure that its client benefits from a deal that is structured around their particular business needs”, comments Baldock. In addition, residual value investments can offer economic costs for the duration of the lease.

Secure flexibility to update the production line
Conversely some businesses, particularly within the manufacturing sector, will view longer life assets such as plant and machinery as better suited to upfront ownership. These assets are more durable and hold their value for longer, thereby proving a worthwhile investment for the business. However, as Baldock remarks, if the business has decided to invest capital in its machinery upfront and own it outright, in fast-moving sectors where manufacturing technology develops at a rapid pace, it will soon be left behind. “By using asset finance as an alternative acquisition solution, the factory can actually future-proof its investment as it provides the flexibility to update the production line as and when the latest technology is released”, says Lombard’s managing director.

Asset finance can drive business growth
“The benefits of different forms of asset finance are really just the tip of the iceberg in terms of the potential it provides to grow and develop a business, even in the most challenging economic times”, Baldock sums up.

Asset finance is an additional, committed line of credit that can be tailored to match a specific contract or business depreciation policy. The range of facilities available not only allows for individual cash flow requirements but can also enable the financier to take a true risk in the future value of an asset to maximise the cash it generates. This flexibility will enable businesses to do more with less, to expand into new markets, to recruit and develop more valued staff, and to ensure a much-needed future of prosperity for our economy.

Asset finance already very popular with smaller businesses 
Although often associated with larger companies, asset finance works for any company size. In fact, already today, more than one thousand small businesses obtain new asset finance every day. According to The Finance and Leasing Association (FLA) 2010, the UK’s industry trade association for the consumer, credit, motor finance and asset finance sectors, with 750,000 SMEs using equipment on leasing or hire purchase, asset finance represents the majority of debt-financed business investment. With approximately 250,000 new agreements each year, one in every three small businesses with any external borrowing uses asset finance.

Your asset finance partner to help you optimise your working capital 
As one of the largest asset financiers in the UK with a twenty percent share in the UK asset finance market, and voted best by Business Moneyfacts in 2009, 2010 and 2011, Lombard provides various forms of asset finance to businesses of varying sizes. Products include hire purchase, finance lease, operating lease, sale and leaseback, contract hire, to contract purchase, as well as multi-specialist asset finance products such as marine, aviation and specific wholesale and stocking funding for distributors and dealerships.

In 2010 Lombard’s business centres provided over £1.2bn of new funding, and Lombard Business Direct, which is responsible for the smaller businesses within the company’s client portfolio, increased new finance by 44 percent.

Security may be required. Product fees may apply.
Asset Finance is provided by Lombard, part of The Royal Bank of Scotland Group, Registered in England No. 337004. Registered Office: 3 Princess Way Redhill Surrey RH1 1NP