The beginning years are crucial for the success of any business. During these years, the business is to adapt to the dog-eat-dog world to set itself apart from the crowd, which is the only way to streak ahead in the race of cutthroat competition. It requires a lot of money to spend on marketing, advertisement, and other growth opportunities that go outside the window once slipped. Unfortunately, money is the biggest concern for start-ups. A constant flow of cash is a must to keep the ball rolling.

The good thing is that there are various ways to raise money to fund the initial capital of your business. Traditional business loans are more popular and safer, too, as you do not have to share a portion of the ownership; however, they are not easy to qualify for. You might not be able to get the nod for these loans at affordable interest rates, but you do not need to worry at all, as you can use asset financing.

There are various types of asset financing solutions and each of them is tailored to a specific need of your business. Some of the most popular methods are:

• Equipment leasing
• Finance lease
• Hire purchase
• Operating lease
• Asset refinancing

Remember that asset financing and asset-based lending are two different things. While asset-based lending allows you to borrow money to buy an asset that serves the purpose of collateral even though you are allowed to use it, asset financing does not involve buying a new asset. It instead involves borrowing money against the current assets of your business to meet the shortfall of cash for a short period.

How does asset financing help grow your business?

Here are the benefits of asset financing:

• It ensures a smooth cash flow

Buying new equipment can disrupt your cash flow. In order to ensure a smooth flow of cash, you should consider asset financing. When you lease a vehicle or machinery, you are supposed to make a fixed payment every month.

As you know a fixed sum of money is to go out every month, you can easily make a budget around those payments. It makes it much easier for you to manage your day-to-day expenses. One of the benefits of asset financing is that you can lease modern equipment without shelling out a lot of money in fell one swoop.

It is much more affordable than startup business loans with no guarantor because the lease duration is typically longer than startup business loans. Further, startup loans carry high interest rates. Larger monthly instalments will affect your cash flow. Getting approval for a traditional business loan is also challenging. Most of the lenders will require you to submit a business plan and to have been running a business for at least a year and to have crossed the breakeven point.

• It lets you access the latest technology

It is vital to use the latest technology to gain a competitive edge, but it can be too expensive to invest in modern technology. If you do not have enough money to buy it outright or traditional loans do not seem to be reasonable, asset financing can come in handy. You can upgrade your equipment without splurging out a lot of money. It helps you save time and improve your financial health.

• It offers flexibility

Another benefit of asset financing is that it enables you to fund any kind of equipment, machinery and vehicles. Although traditional business loans are no different, they are approved when you have a good credit rating. Of course, you will struggle to get the nod for a loan when your credit report is not stellar.

However, all these problems are not to be faced when you prefer asset financing. If you have a bad credit rating, it will not deter you from being able to access money. In other words, it means the growth of your business will never grind to a halt because of your bad credit rating.

Though the chances of being turned down are low, do not be under the impression that you do not need to have a credit rating. Do proper research to ensure that you are contacting the right asset finance provider. Get to know all terms and conditions such as how it works and what will be the consequences if you fail to meet your obligation.

• It offers sufficient time to make up your mind

Asset financing allows you to either refinance, purchase or rent after the end of the period. If you do not have money or cannot decide at this moment, you can think of owning the equipment as the lease contract expires. You can even refinance or rent it.

• Spread the cost of the asset

You cannot deny the fact that asset financing eases the pressure off your budget. You can spread the cost over a period of time by leasing an asset. This enables you to meet day-to-day expenses without further ado. Buying an asset outright blocks your money, and your cash flow becomes a bit tight.

In fact, if you try to get a traditional business loan, the size of monthly instalments will be quite big. You may find it challenging to meet operation overheads.

Drawbacks of asset financing

Although asset financing offers a lot of benefits, there are some drawbacks as well:

• Asset financing is subject to finance charges. They vary by lender. The charges you pay overtime can sometimes be higher than the actual cost of the asset.
• You cannot retain the ownership throughout the lease period. You will have to take back the asset if you do not make a balloon payment.
• Asset financing means paying payments on assets that have been depreciating over time.
• Failing to meet payments will result in repossession of the asset.

The final word

Undoubtedly, asset financing is a great way to fund your small needs. However, you should carefully explore all your options. The other options might seem to be superficially expensive, but they can help you save money in the long run.

Do proper research and understand all kinds of funding options so you choose the one that meets your needs. Consult an expert if you are not sure about whether asset financing wil help meet your needs.