Undeniably, asset finance is a game-changer in the finance world. It’s such a relief to know that we no longer have to comply with endless interest rates and inflexible repayments of traditional banking.
Thanks to asset finance, we can grow our businesses discreetly without anyone suspecting we’re working with a loan. However, asset finance isn’t a one-size-fits-all approach and showcases two major categories.
Therefore, you must decide whether to obtain soft or heavy assets for your business. Keep reading if you need to learn how heavy asset and soft asset finance in the UK works.
Soft assets refer to intangible resources of a business, like goodwill, brand identity, and market reputation. On the other hand, heavy asset refers to tangible resources like machinery, equipment, and vehicles.
Regarding financing, soft assets seem to make an easier deal than heavy assets. Here’s a breakdown of why soft asset financing is easier than heavy asset financing.
- Lower Initial Costs
As a business owner, ensuring that the financial status stays healthy and stable is essential. Often, heavy assets can feel like a burden when borrowing expensive equipment or inventory.
Thankfully, soft asset finances are available, which usually involve low-cost assets. It makes it more accessible for businesses with limited capital to obtain the necessary financing.
- Better Repayment Flexibility
One of the biggest worries is whether or not the borrower will gather the funds to repay the loan. However, you’ll have more flexible repayment terms and financial options with soft asset financing.
It makes it an excellent choice for businesses that experience fluctuations in their cash flow. The best part? Unlike heavy asset financing, you won’t have to stress about repaying the amount.
- Variety Of Assets
Soft assets, like software, licenses, subscriptions, and brand identity, are incredibly diverse and require careful attention. Due to this, many businesses seek finance to help manage these assets.
On the other hand, heavy asset finance is more limited and only covers a few types of assets. Borrowers have fewer options in this case. Yet, managing these assets to ensure the success of your business would be wise.
- Quick Approval
Getting approval for asset financing is crucial for any business looking to expand or improve its operations.
The longer it takes for a lender to approve financing, the more it can delay the borrower’s business operations.
Soft asset financing has a quicker approval process than heavy assets. The latter may require more in-depth assessments of their value and usability.
With soft asset financing, businesses can get the funding they need quickly and efficiently, allowing them to focus on growing their operations.
- Fast Technological Changes
The constant rise of technology is making everyone quickly adapt to its efficient features. Many soft assets are tech-savvy, so their value may diminish due to advancements.
Contrarily, heavy assets work for years without needing to change unless there’s a default in the internal system. That’s why soft assets allow for an easier upgrade and changes to newer technology.
- Reduced Depreciation Concerns
You must know that heavy assets like machinery and vehicles depreciate over time based on the years they’re used. Contrarily, soft assets usually don’t face as much depreciation. It makes them a potentially more stable investment in value.
- Startups And SMEs
Soft assets can be a game-changer for startups and small to medium-sized organizations. Not only do they help establish credibility and reliability in the market, but they also reduce upfront costs. Providing essential software and other soft assets can give these new entities the boost they need to succeed.
- Easy Collateral Requirements
Collateral refers to the guarantee they provide against the amount they want to borrow. The type of collateral required usually depends on the nature of the financed asset.
Soft assets, for example, may require less stringent collateral than heavy assets. Heavy machinery finance in the UK may include valuable equipment, so the collateral must be equally expensive.
- Lower Resale Risk
Reselling heavy assets can be a hassle, especially when striving to achieve maximum value. The value of an asset can depreciate over time, depending on the market conditions, making it uncertain.
Luckily, soft assets such as software and licenses don’t face the same resale challenges and can be easier to manage.
Both soft assets and heavy assets make a pivotal part of asset financing. That’s why it’s important to determine the type you need to flourish your business. However, soft assets still outshine with their flexible nature and outstanding services. Go for it once, and you’ll find yourself making a lasting relationship with soft asset financing.