For any business to succeed it needs its assets, assets of the company do many things, it uses its assets for its productivity and smooth operation, there are many things that are required by a company in order to function properly, from computers to photocopiers to office furniture to equipments and machinery, a company usually requires many assets to perform to the fullest.
There are many ways in which a company can finance itself to buy all the assets that requires to run a company. Many companies go ahead and buy the assets through the reserve cash which they might have, or avail fresh commercial loans. Asset financing has really caught on these days; many companies use this option to buy critical assets that are useful for the company’s functioning. This allows the company to focus on other critical aspects, thus using the capital that they would otherwise be using to buy up assets. It helps a company in updating themselves constantly by not having to spend too much money directly by taking commercial loans, and using up their reserves.
Types of asset finance
Asset ownership through lease
It is very advantageous for a company to use the method of lease to own assets, in this way the company does not remain the owner of the assets but rather only leases it out from the lessor and becomes a leaseholder, it is very helpful for the company because in most of the cases the lessor takes care of the maintenance of all the assets for the lease time, if the clause is mentioned in the lease document.
This type of acquiring assets is very useful for companies that do business seasonally and in other cases where the business has to keep updating its assets constantly. The technology sector is an important sector where this type of a system is followed. The rents are usually considerably lower comparing to the cost of acquisition of the assets.
Hiring assets on a contract basis
This kind of lease is usually followed in the vehicle finance area, where the lessor takes the ultimate responsibility to undertake all the maintenance and repair work like replacing a defective part. The rent paid is usually calculated with due importance given to the depreciation during the period of lease.
The lease of asset finance
In this type of lease, the assets are considered as a whole and the cost of it is for the entire lease time period, and this is without any regard for the depreciation of value, the assets are usually sold at the end of the lease term and the profits of which, are shared among the leasing company and the lessee and this would normally be shared according to pre-agreed amounts.
Purchase by contract and hire method
This represents a flavour of hire purchase method. Once the final payment is made which happens after a certain predefined lock in period, the assets are duly transferred to the lessee or the buyer of the assets.
Purchase of lease
This is a flavour of hire purchase again with a different clause, the payment for the asset is made at the end of the lease tenure after which the rights of ownership and disposal lies with the purchaser or with whoever buys it from him thereon.
How to choose a right type
There are many advantages and disadvantages in all types of asset finance options provided above. You have to understand the circumstances in which you are acquiring the assets and choose the one that suite you the best:
· In case you think that it is important for your company to own the assets. You could go in for a fully funded buying of the assets, either through loans or other kind of accruals.
· If you would like to own asset but don’t wish to buy it right away, it would be good if you chose the hire purchase option. This will make sure that you spend less during the term of lease and own it once you think you are ready.
· If your business involves making use of the assets completely but do not want to own, it would be best if you take the financial lease option.
· If you want to make use of the assets for a time less than the actual life of the asset, then it would be significantly useful if you choose the option of asset finance.