.. to restart, recover and grow in a post Covid, post Brexit environment
We have all learnt over the last 12-18 months that you can never fully predict what the future will hold and that it’s wise to expect the unexpected.
Resilience is key on two fronts – within the business, not being overly-dependent on any one market, one customer, one supplier or one route to market; within the owner, the mental resilience to be able to withstand shock, adapt and maintain a positive mindset to push forwards.
We have seen this ‘entrepreneurial mindset’ at its best throughout 2020-21, as SME owners have adapted, pivoted, managed risk, and sought out new opportunities. Indeed the UK ranks 4th globally and 3rd in Europe in the latest Global Innovation Index 2020 demonstrating that we continue to be one of the most entrepreneurial countries in the world.
From discussions with business owners over the last few weeks, many are now seeing the next few months as a real ‘crunch time’ – a ‘triple whammy’ effect of business recovery and income not yet back to where it was pre Covid, Government support packages starting to tail off meaning overheads are building and also inflationary pressures on input costs with disruption to supply chains from both Covid and Brexit and wage price pressures.
This is where asset finance could help businesses maintain some essential cash headroom over the coming months to help weather the storm of continued instability and enable them to grow, when market demand fully picks up again.
In 2020, asset finance companies provided £27 billion to UK businesses in the form of asset finance, representing over a third of UK investment into machinery and equipment in the last year.
Many businesses will have taken on debt through the Government CBILS, Bounceback or Recovery Loan schemes over the last year. However many have found themselves financially stranded and research indicates that UK SME’s need more support in Post-COVID economic recovery.
By financing assets, or re-financing assets, businesses can steady their cash flow and invest in the long-term revenue stream of the business, helping to offset current cost pressures and continued trading uncertainty.
However for many the world of alternative financing is unchartered territory and it can be difficult to understand which type of finance is best suited to their business situation.
Here’s some examples of how some of the businesses we have supported are using three different types of asset finance to help them maintain cash headroom.
Hire Purchase
What is it?
Hire purchase enables your business to acquire the machinery, vehicles and equipment you need by paying for it in instalments over time, thereby keeping cash in the bank.
How has it helped?
With some parts of their market slowing, such as construction sites closing, early on in the pandemic, a utility services company was faced with a need to increase the capacity of its fleet to continue to serve ongoing infrastructure contracts.
Hire purchase enabled them to acquire a £0.5m new tanker vehicle and recycling equipment, with instalments spreading the cost over time, enabling them to hold cash in the business to support ongoing working capital.
Finance Lease
What is it?
Leasing allows businesses to obtain new equipment by renting it for a contracted period without owning it.
How has it helped?
With store closures due to lockdowns affecting their existing estate, clearly interrupting revenues and working capital, one retail business is now using finance lease to help maintain momentum on new store opening opportunities and premises fit out, enabling the business to get back onto a growth track, as their estate starts to reopen and trade again.
Refinancing
What is it?
The ability to raise additional capital to fund business growth using your existing assets, including vehicles, machinery and equipment.
How has it helped?
A transport and logistics company, whose key sectors include aerospace, automotive, events and exhibitions, was forced to downsize its fleet during the pandemic due to reduced demand. The business is now using asset refinancing to raise additional capital from its remaining fleet, settle existing debt agreements and provide additional working capital to rebuild capacity.
If you would like to discuss how asset finance could help you maintain essential cash headroom in your business in the coming months, please contact us on 0345 833 4771 or email info@directassetfinance.com