British businesses borrowed more money using asset finance than ever before in 2019. Asset financing– borrowing against physical assets ranging from plant and machinery to vehicles and commercial premises – rose by 6% to £35.7bn, according to the Finance & Leasing Association. The Bank of England says banks lent just 0.8% more to small and medium-sized enterprises (SMEs) last year.
The advantages of asset finance include easier access to money, lower costs and greater flexibility. Since businesses are borrowing against the value of a physical asset the lender feels more comfortable advancing credit. And businesses acquire new assets as they grow, allowing them to secure more finance; the facility thus grows in line with the borrower.
The two main options for small business finance
Asset finance comes in different forms. The most straightforward arrangement is a hire-purchase option. A business looking to acquire a particularly expensive asset borrows the upfront purchase price from the lender, repaying the loan in monthly instalments and using the asset as security in the arrangement. In leasing deals the lender buys the asset and the borrower pays a monthly fee to rent it for an agreed period. At the end of the term the business can renew the lease, upgrade to a newer asset or buy it outright.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Which of these models suits your business best will depend on your circumstances and what you need to acquire. With a hire-purchase contract, you own the asset from the start and are responsible for servicing and maintenance, but you will pay a premium to cover the lender’s costs. With leasing the lender often takes on servicing duties, while you can also upgrade assets regularly. But this may prove more expensive overall.
Tax may also be a consideration. Hire-purchase assets sit on your balance sheet straight away. This may entitle you to use the annual investment allowance, which this year enables you to deduct up to £1m of investment from your profit before paying tax. Leasing counts as an operating cost and can be written off against your gross profit.
You don’t have to use asset finance to acquire new assets. If your business already owns physical assets but needs to raise finance for another reason, you may be able to borrow against the value of these assets. Lenders will typically consider advances worth up to 80% of the value, releasing funding that can be used for any purpose.
Shop around for the best deal in an increasingly competitive asset finance marketplace. Online platforms such as Funding Options are a good starting point.
Co-working: is sharing an office a good idea?
The co-working phenomenon is gathering pace in the UK, with more and more businesses renting space in a shared office building. The biggest co-working firms’ portfolios increased by 22% in 2019, according to law firm Boodle Hatfield. WeWork’s portfolio alone increased by 30%, while competitors such as Regus are rising to the challenge. Its new 80,000 square-foot office complex in Victoria is its largest London site on record.
But while co-working spaces are popular with start-up businesses and, increasingly, larger companies, do they suit your firm? Advantages include not having to worry about equipping the office or dealing with telecoms, utility and IT providers; moreover, you can easily take on more space as your business grows.
Co-working fans also point to the soft advantages of working alongside other growing businesses, including networking opportunities and the business support services some venues now offer.
However, there are downsides too. Above all, co-working spaces often prove far more expensive than traditional offices, particularly over the longer term. With so many services bundled into the headline price, it’s not always obvious what you’re paying for. If you want dedicated, private space, you’ll pay a premium. Co-working spaces can also be noisy and cramped.
-
Tesla seeks approval to supply electricity to UK homes – could it disrupt the energy market?Tesla has applied for a license to supply UK households with electricity, but taking on the biggest providers could prove challenging
-
Most Brits unaware onshore bonds can help beat inheritance tax – here’s howA little-known perk of certain types of bonds can let your loved ones off the hook when it comes to inheritance tax – but two-thirds of people have never heard of them
-
Live: Bank of England holds UK interest rates at 4.5%The Bank of England voted to hold UK interest rates at their current level of 4.5% in March, as widely anticipated, after inflation rose to 3% in January
-
Bank of England cuts interest rates to 4.5%: full updates and analysisThe Bank of England voted to reduce the base rate by 25 basis points at the first MPC meeting of the year on 6 February. Full coverage as it happened from the team at MoneyWeek.
-
December interest rates: Bank of England keeps rates on holdThe Bank of England kept interest rates on hold at 4.75% in the final Monetary Policy Committee meeting of 2024. Full analysis from the MoneyWeek team.
-
Bank of England cuts interest rates to 4.75% – MPC meetingReporting from the Monetary Policy Committee November meeting. Full coverage, as it happened, from the team at MoneyWeek.
-
Inflation drops below Bank of England target for first time in over three yearsUK inflation slowed to 1.7% in September, boosting the chance of a more aggressive approach to interest rate cuts from the Bank of England
-
Bank of England holds interest rates at 5%The decision was widely expected, after the Bank of England warned interest rates would have to “remain restrictive for sufficiently long”
-
Keeping up with the Bank of England – how rates and inflation impact your financesIgnorance is not bliss when it comes to your personal finances. Here’s why you should follow what the Bank of England is up to.
-
Bank of England cuts interest rates for first time since 2020The Bank of England voted to end pain for households and businesses today, cutting interest rates for the first time in over four years
