Machinery, financed against itself.
The asset is the security, so this is cheaper than a working capital facility for the same money. What the banks want is the quote and the numbers behind the business.
- Usual term
- 4 yearsMatched to the working life of the asset
- Security
- The equipmentWhich keeps the rate below unsecured money
- Balloon
- OptionalCommon where the asset holds residual value
- When it is done
- Paid outTo the supplier, against their invoice
Why this is not a business loan
A working capital facility is unsecured: the bank is lending against your cash flow and nothing else, and it prices for that. Asset finance has the machine standing behind it. Same bank, same business, materially different rate — so if what you need the money for is a thing with a serial number, this is the cheaper door.
It also keeps the facility free. Financing a lathe on your overdraft uses up the headroom you may need for a slow month.
What the bank is actually assessing
Two things, and in this order: whether the business generates enough to carry the instalment, and what the asset is worth second-hand if it does not. A common machine from a known supplier with a resale market behind it is a different proposition from something bespoke, and the term and deposit will say so.
Matching the term to the asset
The term should end before the asset does. Financing a five-year machine over six years means a year of paying for something you have already replaced, and banks will usually push back on it anyway. Where an asset holds its value a balloon can make sense — but it is still a lump sum due at the end, and it should be matched to a replacement cycle you actually run.
What you will need
Straight off the application's own checklist. The ticked ones are required; the rest are asked for only where they apply to you.
- ✓The supplier's quoteOn the supplier's own paper, with the specification and the price.
- +What is being financedMake, model and serial numbers where the asset has them.
- ✓Twelve months of bank statementsThe business account, in the bank's own PDF.
- ✓Your latest financialsAnnual financial statements, or management accounts if the year end is far off.
- ✓Company documentsRegistration, and the IDs of the members or directors.
- +A note on what it is forOne paragraph. What the machine does and what it replaces or adds.
Questions
Can I finance used equipment?
Often yes, particularly where there is an established second-hand market and a dealer behind it. Expect a shorter term and a larger deposit than the same money would carry on new.
Does the business need to be profitable?
It needs to show it can carry the instalment, which is not quite the same thing. A business investing heavily can look thin on paper and still be an easy credit decision once the cash flow is read properly — which is the part a well-built pack does and a form does not.
How new does the business have to be?
Most banks want to see trading history, commonly a year or more, because they are reading your statements rather than a projection. There are lenders who write earlier than that, usually against a bigger deposit.
Will I have to sign surety?
For a small company or close corporation, usually yes. The asset is the primary security and a personal suretyship from the members is ordinary alongside it.