Asset Financing And It’s Benefits In Kenya
Asset financing gives the company flexibility to plan for investing in the assets.It refers to the use of a company’s balance sheet assets, including short-term investments, inventory, and accounts receivable, to borrow money or get a loan.
Asset financing is typically used by businesses, which tend to borrow against assets they currently own. Accounts receivable, inventory, machinery, and even buildings and warehouses may be offered as collateral on a loan.
Minimal Upfront Costs
Asset financing is intended to minimize the upfront costs of purchasing an asset.
The finance provider purchases the asset for the business before leasing it to them.
Increased cash flow
By distributing the cost of the asset over time, you can use spare capital for other growth goals or lay it aside for security, all while obtaining access to the equipment your company needs to compete and advance to the next level.
No Deprecation
Assets such as industrial machinery and IT equipment can depreciate quickly, effectively lowering the asset’s value.
Asset financing reduces the risks associated with depreciation since the business doesn’t bear the brunt of the asset’s decline in value.
Asset financing works differently depending on the method you choose, as discussed below:
Equipment Loans
This is a method of acquiring assets by paying in installments over time.
You legally own the item once all payments are made.
It’s a type of asset financing comparable to equipment leasing but simpler and possibly less flexible in general.
Unlike leasing, your business owns the item with equipment loans.
Equipment Leasing
Due to the independence and flexibility it offers, this is yet another attractive alternative for asset financing.
In it, the company (borrower) and a lender will sign a contract allowing the business to use the equipment for its purposes for the specified period of time.
Up until the conclusion of the contractual period, the business makes payments.
When the lease term is complete, the company has several options, including returning the leased equipment, renewing the contract, upgrading to more modern equipment, or buying the current equipment entirely.
Finance Leases
This is a kind of equipment lease in which the customer (or ‘lessee’) leases an asset for most of its useful life.
Operating Lease
One of the most fundamental kinds of equipment leasing is this one, where the customer is exempt from the risks and benefits of asset ownership (such as maintenance fees).
A short-term or somewhat longer-term operating lease is a mechanism for your business to rent an asset.
In conclusion, asset finance enables companies to plan ahead for asset investments.
They can borrow money more quickly by putting up assets like inventory and accounts receivable as collateral.
