Why Asset Finance Is As Popular And Valuable As Ever
What Is Asset Financing?
Asset financing is more of a lending or a loaning system where you have access to lending current assets at hand like machinery, equipment, tools, resources and vehicles for many uses. The best thing about this system is that when you are lended or handed over these resources, you do not have to purchase them at any cost.
What Are These Assets And What Value Do They Hold?
These assets do not only pertain to limited assets, these assets can be any kind of tangible resource or product. They can be from heavy machinery in constructing, to the manufacturing machines in factories and sewing machines in the clothing business. The values these assets hold are decided by the ones who need and require it for their business uses.
Why Do Businesses Promote And Encourage The System Of Asset Financing In The Market?
New businesses startups are not easy so they require a lot of money to purchase the production equipment and machinery, thus buying these assets are very expensive. So to avoid the entire expenditure, new businesses start borrowing assets they can get access to in order to avoid all that hassle.
Businesses which are already in order aim for profit maximization and in order for that to happen, they need to cut down their cost of production and what better way to cut it down if the machinery you have is borrowed.
How Does It Work?
Asset finance is all about one business helping out the other by lending their assets over until of no use. To every kind of system you are taking up, there are certain requirements or there are many different ways of how asset financing works
- Equipment lease: In this scenario, you are renting out equipment or machinery for a specific duration in a certain amount, catering or renting out a piece of land is a good example, but in the end you have to return it
- Asset Refinancing: This is where you are securing a loan against the company you obtained money from and mortgaging your assets in return if you are not able to return back that loan.
- And all other kinds of systems are available too like hire purchase, finance leases and capital leases.
Businesses Benefitting From Businesses
Businesses which are securing assets for the aim of organic and economic growth, where are these businesses or companies getting these high valuable assets from? From other functioning businesses of course! And what do these businesses gain from lending their assets to other businesses? As the asset borrowing businesses are trying to gain profit(or hard cash) through the items they are producing with the assets, they get part of the profits secured against the loaned assets. Or let’s take it the other way around. If a business has taken a loan, they mortgage their own assets as security against that loan if they are unable to pay the due amount back. This system in asset finance is called asset refinancing.
Finally, Dual Satisfaction
To put it all in one note, this system is a win-win situation for both the lender and the borrower as they both have something to gain in the end. The asset supplier will receive financial gain and in return, the borrowing business will have its cost of production cut down. It's a game of tit for tat in this system where both sides will benefit nevertheless in the end.