How asset finance companies can help SMEs to recover from COVID-19

Under the CBIL Scheme, banks are having to guarantee 20% of the value of the loan and the business owner has to personally guarantee the loan if it is more than £250,000, meaning it has been less popular than the Bounce Back Loan, which is 100% government backed and quicker to provide.

With some investors’ sentiment levels falling to levels last seen during the 2008 financial crisis, asset finance opportunities may also offer crucial lifelines for small and medium-sized businesses.

For many small businesses, the major benefit of asset finance over a loan is the fact that business owners do not have to put up any of their other business or personal assets as security because the provider is not loaning any money – they are providing the asset itself, on a hire or lease basis.

As the finance provider legally owns the asset, at least until the SME has repaid the full value, that payment serves as the security.

Because asset financiers cannot decide to recall the loan at any point, as no money has been loaned, the business has greater security throughout the lifetime of the agreed term. This means that, unlike other loans or schemes, businesses can accurately plan their financial future on a more clear and stable footing.

As well as the securities that asset finance arrangements give, they can also be very flexible.

For SMEs, there is often a lot of scope to negotiate payment options. During the COVID-19 crisis, this has been invaluable for many businesses, particularly for those in the hospitality sector.

Asset financiers can support these businesses by helping their business leaders to gain access to vital infrastructure.

Asset financing is an exceptionally valuable tool, which many SMEs should look towards; especially as they rebuild their businesses over the coming decade.

To help them, finance providers need to explain the clear benefits to their potential clients in terms of how these agreements can help their cashflow and support revenue growth – something which many SMEs will be yearning for right now.

* Reece Tomlinson (pictured) is chief executive officer of RWT Growth, corporate advisors in the global SME sector