When you want to compare commercial finance there are lots of different options available. However, some are only applicable to certain businesses and sectors, whilst others are used to purchase assets over time. For some businesses, using commercial finance can be a fantastic way of finding financial aid or solutions which are specifically designed for your business. This will mean better rates, with features aimed at making the running of your business easier.
Trade finance is a general term used for several different financial products which are used to fund international trading. Due to the nature of trade finance it can often become complicated, as there are typically lots of considerations which need to be taken when creating a finance package.
Within the international trading sector, as a natural part of business, normally both importers and exporters can be left waiting for payments. Trade finance essentially is designed to help businesses have working capital so that they can meet their day-to-day obligations. Trade finance allows businesses to obtain goods from overseas, without negatively effecting cash flow, this helps businesses build positive relationships as neither importers or exporters will be in a position left waiting for payments.
Providers can also offer products to hedge against the risk of currency fluctuations and provide a variety of other insurance products. Financers look to provide the correct service and can typically communicate in a range of different languages, providing finance in preferred currency whilst keeping interest rates in mind. With the help of a lender offering trade finance, they can also give advice on helping understand different cultures and intelligence and information about foreign markets.
Purchasing brand new equipment for businesses, anything from technology to vehicles can be hugely expensive. For start-ups or even established businesses, this sort of up-front cost can sometimes be too much of a burden and can really set a business back in cash flow terms. Asset finance gives you the option of spreading the costs of gaining a new asset, gradually over time.
The assets themselves form the security for the lender, with the cost then spread over the potential lifespan of the item. Importantly what it does, is make managing cash flow and budgeting that much easier. Importantly asset finance can give a certain level of financial stability as well as giving you the option to obtain some of the latest equipment which the business might not otherwise have been able to afford.
Hire purchase falls under the bracket of asset finance and is a solution to purchasing equipment without the large initial upfront cost. A hire purchase agreement involves a business paying an initial deposit, then paying off the remaining balance in instalments, typically monthly. Effectively it allows your business to acquire the assets it needs to grow, develop or replace any faulty items.
A hire purchase contract is normally similar to finance leasing, except that an asset would immediately appear in the balance sheet as owned. Just like other forms of asset finance it allows businesses to get hold of assets which might otherwise be too expensive.
Another form of asset finance, leasing allows a business to gain and use assets while spreading the cost. Very similar to hire purchase, you pay back the cost of the item in monthly instalments, however, at the end of the contract a business will typically have several options available. Return the asset to the leasing company as you no longer require it, upgrade the item and renegotiate a new lease or make a one-off payment and then legally own the asset.
As you will not own the asset for the duration of the lease term it will not appear on your balance sheet. Leasing avoids several problems when it comes to owning assets. Full ownership of on asset can lead to the business eventually losing money if that initial asset wears out. Leasing costs are also normally considered to be a trading expense which make it possible to deduct them from final taxable profits. Leasing also enables you to trade-in your asset for a more updated version. Some lease agreements include responsibility for the ongoing maintenance of the asset which can give you peace of mind for the duration of the lease.
When you compare commercial finance, choosing the right product for your business often involves taking advice from your accountant or tax adviser before reaching a final decision.
When cash flow is tight, but your business is asset rich, refinancing gives you an option to borrow money which is secured against the value of your existing assets. Refinancing can be a brilliant option of realising a cash injection. A business could be asset-rich, but cash-poor in which case refinancing could be an ideal solution.
A business is able to pay back its refinance loan in monthly instalments over a set period of time. Refinancing assets doesn’t affect a business’s ability to use equipment and a business can continue trading as normal, which is why it can be so beneficial for businesses with unused assets.
Commercial finance is critical to business, but it has to be the right sort of financial solution to suit a business’s needs. There are lots of benefits to commercial finance and it can be an effective alternative to some of the more traditional means of raising cash, the important thing to do is compare commercial finance and see which option suits you.