If you want to purchase new plant or machinery for your business, there are many funding options to help you do so. Using finance for new equipment can also help you save your working capital and improve cash flow. Let’s take a look at the options available.

Asset finance

Essentially, asset finance is a general term for finance that gives you access to business assets such as plant machinery and vehicles for your firm. It also enables you to ‘unlock’ cash from machinery your company already owns, which is called asset refinancing.

If you’d like to get new machinery for your business, there are two asset finance options on the market.

Equipment leasing

Instead of buying plant machinery outright, equipment leasing allows you to use the asset for a set period of time in return for a monthly fee. It’s essentially a long-term rental that gives you access to expensive equipment.

You also won’t have to worry about insurance or maintenance because the finance provider usually takes care of it. Additionally, your monthly payments to the lessor can be offset against profits since they count as business expenses, which may reduce corporation tax in some cases.

Once your contract ends, you’ll need to return the asset. You’ll then have the option to start a new contract and upgrade to a newer model, or choose a different type of funding.

Hire purchase

On the other hand, hire purchase enables you to buy the asset with installments over a set time. In contrast to equipment leasing, you’ll legally own the plant after you’ve paid all the installments. However, in some agreements the asset may appear on your balance sheet at the beginning of the term, which might affect your tax position.

There are a few things to bear in mind: the lender will usually ask for a 10% deposit and all the VAT upfront — so there’s still a lump sum involved, albeit a much smaller one than an outright purchase. Compared to equipment leasing, hire purchase is a long-term option, so you should ask yourself if you’ll need the asset in the future or if leasing would be a better option to retain some flexibility.

Business loans

Another option for plant finance may be a business loan. This is especially useful if purchasing assets is just one of the purposes you need finance for.

You may be eligible for a secured loan if your firm already owns assets, because you can use these assets as collateral which effectively allows you to borrow more money than with an unsecured loan. This way, you could use existing assets to buy new plant and machinery, and may have some funding left over for another project.

If you’d prefer not to offer security, an unsecured business loan could be a good solution. Usually, the amount you can borrow is lower and most lenders will ask for a personal guarantee, but if you’d rather not use assets or don’t have them available it can offer a second option.

Final thoughts

Buying plant and machinery for your business can take up a big part of your working capital and restrain your cash flow. By using alternative finance, you can prevent these situations and choose the most suitable funding option for your business. The key benefits are:

1. Access to assets right away
2. Leasing options that are aligned with how your business trades
3. Tax benefits with leasing
4. The option to upgrade your asset
5. Hire purchase options to legally own the asset at the end of the term
6. Easy budgeting with set payments for steady cash flow

Once you’ve found the plant or machinery you’d like to get, you’ll need to think about the purpose and whether a long-term or a short-term solution would be better. Either way, always remember that there are many options out there to help you get equipment easily, without a big cash outlay.

Conrad Ford is founder and CEO of Funding Options, the online marketplace for businesses finance. Funding Options is helping the small walk tall. Funding Options helps businesses find the right funding for their situation — whether they want to grow, they’re fighting for survival, or simply need to pay a tax bill.