Pros and cons of asset finance

Although asset finance is largely beneficial to a company though there are still a few key points you need to consider. As with any financial contract you should be fully aware before signing and making any commitment. Below are a few pros and cons which may be helpful in making your decision. It’s also a good idea to talk to an independent financial advisor or a finance company that should be able to talk you through your options.

Pros

An operating lease from an asset finance company is not classed as debt and as such is not affecting your credit rating. This may in the future help when you are applying for credit, loans or mortgages.

With small and regular lease payments to be made your company will have a greater cash flow at your disposal allowing you to purchase other assets or adapt quickly to changing business conditions.

Paying fixed amounts each month is beneficial for budgeting as it’s much easier to budget for the future with fixed amounts than those that can change from month to month.

Lease payments are classed as an expense which means that untaxed money can be used.

Some lease plans come with bonuses which could included servicing, potentially a massive saver as servicing cost can be expensive, as well as variable monthly payments which could help you during quieter months of the year.

Cons

Leases are usually agreed over a fixed time period which more often than not can’t be ended early.

Fixed interest rates are common as part of the financial agreement. This is a disadvantage if interest rates should fall as you would be paying less than a variable rate. On the other hand if rates rise then you may be better off.

The total cost of the repayments is almost all ways greater than the cost of buying the asset out right. When weighing up your options you should consider the tax benefit of asset finance.

The lessor of an asset may require additional security, which in turn could affect your company’s credit rating.

This article was written on behalf of General Finance Centre who provide asset finance.