What is Hard Asset Finance?
Hard asset finance is the process of borrowing money to finance heavy machinery, vehicles, or industrial equipment for your business. It caters to tangible assets with a substantial resale value, such as construction equipment, delivery trucks, or manufacturing machinery.
For many businesses, especially SMEs, it’s almost impossible to buy this expensive equipment outright. Asset finance makes it possible for you to access the essential hard assets you need to grow.
The key feature of hard asset finance is that the asset itself often acts as collateral for the loan. This usually results in more favourable terms and interest rates. Businesses can use this type of financing to acquire assets that are crucial to their operations without compromising their working capital.
What is Soft Asset Finance?
On the flip side, soft asset finance focuses on intangible assets that may not have a concrete resale value. This can include items like software, IT infrastructure, or even office furniture. Since these assets may not hold their value as well as hard assets, lenders usually view them as riskier; it’s a much rarer form of asset finance.
Soft asset finance, however, provides a way for businesses to spread the cost of acquiring these essential items over time. While interest rates may be slightly higher compared to hard asset finance, it allows companies to maintain financial flexibility without tying up valuable collateral.
Monthly repayment rates will be agreed in advance, and you can properly budget knowing exactly how much your soft assets will cost you every month.
Residual Value – What is it and Why Does it Matter?
Now, let’s talk about a key consideration in asset finance – residual value.
‘Residual value’ refers to the estimated value of the asset at the end of the finance term. In hard asset finance, the residual value is often higher because tangible assets tend to hold their value better. This can result in lower monthly payments for businesses, as lenders know that the asset can be sold to finish repaying any loans.
By contrast, soft asset finance usually has a lower residual value, as intangible assets can depreciate more rapidly. However, this doesn’t make soft asset finance any less valuable. It’s about finding the right fit for your business needs and financial goals.
