The rise of Klarna and other forms of retail credit serving instant gratification has led to a misconception of finance, that it is there to make purchases affordable that otherwise wouldn’t be achievable. We are keen to change this perception as most of the finance we arrange for our clients is so their cash can work harder for them, rather than being tied up in assets not because they couldn’t afford the equipment otherwise.
Some of the most successful and profitable SMEs understand that debt allows the business to grow at a much faster rate than through cashflow alone. By utilising finance for asset purchases, the cash not tied up can be used to generate income by:
- Taking on another sales person
- Paying for a marketing campaign
- Sitting in a high interest account
- Buying raw materials in bulk to take advantage of discounts
- Enabling you to be reactive in the market place
In a scenario where cash was used instead of finance, it is more than likely that a choice would have to be made between the equipment purchases and the points above that will generate income. Deciding not to proceed with the equipment purchases could have other cost implications:
- Costly repairs and servicing
- Outsourcing costs
- Lack of productivity improvement
- Reduced error mitigation
By utilising finance, not only can money be made from the cash but an immediate return on investment will be seen.
Whilst there is a cost attached to finance as there is interest as with any borrowing, however often the cost of the interest is far outweighed by the growth the freed-up capital will allow your business to have.
Another common reason for clients not considering finance as an option is that they think they will miss out on their first year allowances. This isn’t the case though, as a hire purchase agreement is accounted for in the same way as a cash purchase and the relevant first year allowance, whether that be Full Expensing or the Annual Investment Allowance can be claimed.
When looking at your budgets for the year, it is important that everything is looked at holistically, so finance can be utilised in the most cost-effective way. As an example, we would always suggest opting for finance on an asset rather, than purchasing it outright and then deciding later you’d like a cash injection, for which unsecured loans are high rate and will almost always require director’s guarantees. By working with a good broker early on, you will be able to discuss your plans in full and curate a plan to ensure you end up with the most suitable solutions and competitive blended rate, saving you time and money.
So instead of asking yourself, can you afford the equipment without finance, the question should really be can you afford not to finance the purchase? Of course every business’ requirements are slightly different and we are more than happy to discuss any upcoming requirements you may have or the overall plans for your business.