Financing vs Overdrafts in Asset Finance

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Author: Paul FazakerleyPublished: 08 May 2024

In the complex world of business finance, owners often find themselves at a crossroads choosing between overdrafts and the broader horizons of financing. This is often because business owners are not aware of the benefits that come alongside the finance they choose.

Let’s take a deeper look into the benefits of choosing asset finance over conventional overdrafts, allowing you as business owners to be more equipped with the knowledge to make smarter financial decisions.

With asset finance the monies are not usually repayable on demand and the lender will usually only take title to the asset being financed. Overdrafts are usually repayable on demand and most lenders require a Fixed and Floating Charge over all the company’s assets.  An overdraft facility can be reduced or removed at any time, unlike asset finance which is in place for the duration of the agreed term.

Predictability and Budgeting

Financing options such as finance lease, refinance, or hire purchase provide a structured payment plan, this can be an effective way of accurately budgeting, you’ll know exactly how much you need to pay each month, and for how long.  The predictability of fixed monthly payments helps in forecasting outgoings and aids in long-term financial planning.

Ownership and Equity

With certain types of asset finance, such as a hire purchase agreement, you'll typically own the asset at the end of the payment term. This can be advantageous as it builds your company’s asset base and equity. Assets owned outright could also be used as collateral for future financing if required, allowing you to grow your business further.

Tax and Accounting Benefits

Asset Finance can offer tax efficiencies. Some forms of finance allow you to claim tax deductions on interest payments and depreciation, which can reduce your taxable income. Additionally, not having to pay a lump sum upfront for an asset can free up capital for other investments, keeping your business's cash flow healthy.

Credit Preservation

Asset finance for specific assets usually won’t impact your company's other funding lines. Your overdraft facilities remain untouched, preserving your ability to respond to unexpected expenses or opportunities without disrupting your cash flow.

In the dynamic world of finance, having clarity on your funding strategy is key. Whether you opt for asset finance to safeguard your budgeting, preserve credit, and build equity, or choose the fluidity of an overdraft for its flexibility and ease of access, ensure the decision supports your overarching financial goals and the healthy operation of your business.

Navigating financing options needn't be a complex task. With the right approach you can select a financial path that helps your business to flourish and grow. Here at InterBay Asset Finance we are here to help you unlock your business’s potential.

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