Asset and equipment finance

Asset finance is generally the right structure whenever a business needs to acquire plant, machinery, vehicles or production equipment and would prefer to preserve cash and existing bank lines rather than pay outright. It also suits businesses seeking to release capital from equipment they already own, through a sale and leaseback, to fund working capital or further investment.

It is a natural fit for capital expenditure decisions with a clear, identifiable asset and a useful economic life that broadly matches the proposed repayment term. It is less suited to funding intangible investment such as software development or marketing spend, which does not provide the funder with a tangible, resaleable asset to secure against.

Hire purchase transfers ownership of the asset to the business at the end of the agreement once all payments are made, and is generally used where a business intends to keep the equipment for its full working life. Leasing keeps ownership with the funder throughout, with the business paying for use of the asset, which can suit equipment that depreciates quickly or is likely to be upgraded before the end of its useful life.

Sale and leaseback allows a business to sell equipment it already owns to a funder and lease it back, releasing the equity tied up in the asset as immediate cash while retaining uninterrupted use. Export credit agency supported facilities extend more favourable tenors and pricing on imported capital equipment where the exporting country's ECA provides a guarantee to the lender.

Because the loan is secured against the asset itself, funders focus heavily on its resale value, expected depreciation curve and the liquidity of the secondary market for that asset class. Standard, widely used equipment such as vehicles, forklifts or common machine tools is financeable by a broad range of generalist funders, while specialist or bespoke equipment requires funders with specific sector knowledge of resale value and residual risk.

Business-side assessment covers trading history, affordability of repayments against cash flow, and existing gearing. New businesses and those with limited trading history can often still access asset finance, since the asset itself provides security, though this is usually reflected in a higher deposit requirement or a personal guarantee.

Pricing is generally quoted as a fixed rate over the term or a margin over a reference rate, reflecting the asset type, its expected residual value, and the covenant strength of the business. New, standard equipment with strong resale markets typically prices more keenly than used, specialist or rapidly depreciating assets.

Deposits typically range from nil to twenty per cent of the asset value, with lower deposits generally available for well-covenanted businesses financing standard assets, and higher deposits required for used, specialist or higher-risk equipment. Arrangement fees are usually modest relative to facility size and are often built into the repayment schedule rather than charged upfront.

GFG reviews the specification, age and cost of the asset alongside the business's trading history and forecast affordability, then approaches funders with relevant experience in that asset class — general equipment funders for standard assets, and specialist lessors where the equipment is bespoke or the market for it is thin.

For straightforward, standard equipment, indicative terms and documentation can often be completed within one to three weeks; specialist assets or ECA-supported structures typically take longer due to additional technical and credit approval steps. GFG's success-based fee applies only once the facility completes and funds are drawn.