New Asset Finance Options Are Shaking Up SME Funding Heading into the New Year

Moving into 2025, SMEs in the UK can expect a challenging but, in many ways, promising landscape. Inflationary pressures are set to ease gradually, and we could see a slight dip in interest rates, which might allow you to explore fresh ways to get the funding you need.

Traditional lending options like bank loans are still somewhat in demand, but they can come with high borrowing costs. That’s why asset finance is becoming more and more popular as a flexible alternative that’s giving businesses more control over their finances.

The Changing Situation in Finance for Small Businesses

2024 has seen a subtle but important transformation in the way SMEs are approaching finance. Pressure on bank loans – which have often been seen as the go-to for capital funding – has come from a mixture of high interest rates and constrained credit availability. On the other hand, asset finance has been on the rise, offering businesses a new, attractive option for securing their assets without the same financial strain.

In the first half of 2024, the UK’s asset finance market saw a steady increase.

The sector experienced new business growth of around 4% year-on-year. More and more SMEs are recognising the ways in which financing their business assets through leasing and hire purchase agreements can give easy access to vital capital. It gives businesses the flexibility to acquire essential equipment, tech, or machinery without needing to commit large upfront sums or manage the admin hassle of a bank loan.

Why is Asset Finance Gaining Popularity?

It’s hard to give a single answer to this question, as different businesses have different reasons for choosing asset finance as an option. The key thing that sets it apart – particularly for SMEs – is the flexibility it can offer. Loans are usually tied to a set interest rate and a repayment schedule, but asset finance agreements can be structured in a way that suits a business’s cash flow.

Recently, businesses have needed to adapt quickly.

As the financial landscape becomes more complex and intricate, asset finance can evolve to meet a wider range of needs. This means that SMEs can be adaptable to managing cash flow while still investing in long-term growth.

A coffee shop owner access finance for his small business on a laptop

What’s New in Asset Finance?

The Expansion of Embedded Finance

One of the biggest shifts in asset finance is the growth of embedded finance. This is all about offering businesses the ability to access finance options directly through systems they already use, like sales platforms or equipment suppliers. Basically, businesses can now incorporate finance options into their everyday operations, which makes it easier to manage payments and spread the costs of assets.

It’s especially valuable for businesses looking for quick and easy ways to fund purchases. Instead of dealing with traditional lenders, you can secure finance straight from the supplier or a third-party provider, simplifying the process a lot.

Sustainability-Focused Finance is on the Rise

Sustainability is a key factor that’s going to keep influencing asset finance – and the economy at large – heading into 2025. With the government introducing new measures to support green investment, many asset finance providers are now focusing on offering finance for sustainable business assets.

The full expensing regime – which was introduced in the Autumn 2024 budget – has boosted the appeal of investing in sustainable assets. This allows businesses to write off the full cost of qualifying assets in the year of purchase, helping them to make greener investments without the financial burden of upfront costs. As more SMEs look to future-proof their operations, financing for sustainable assets is becoming a more and more attractive option.

Alternative Finance Options

As we mentioned, bank loans are constrained by high interest rates and inflation, making alternative finance options more popular. Beyond asset finance products, businesses are turning to invoice finance, cash advances, and equity investment for their funding.

Let’s look at an example – invoice finance. This lets your business release cash tied up in unpaid invoices. Once the invoice is paid, you can reimburse the finance provider and, in the meantime, resolve any cash flow issues.

What Does This Mean in Terms of Finance for Small Businesses?

The cost of borrowing is high, and inflationary pressures are still lingering, which is why a lot of SMEs are facing a tight cash flow. But asset finance options can offer a ray of hope. The key is understanding which option would work best for your particular needs, whether in need of new machinery, software, or equipment.

The fact that asset finance is on the rise is a good sign for SMEs, as the process is often much more individual, flexible, and bespoke than a traditional bank loan might be.

A woman access embedded finance through a phone call and makes notes

Need Clear, Honest Advice About Asset Finance?

Bluestar offers flexible asset finance solutions without the hard sell. Our aim is to help businesses of all sizes secure the assets they need for growth. Everything we do is focused on clarity and support with an absolutely central human touch.

We offer competitive rates, no large deposits, and a range of finance options beyond asset finance. Investing in your business should be easy, and with quick turnarounds and exceptional customer support, we’re committed to making that a reality. Find out more about our finance options here, or get in touch with us today for a chat.

FAQs:

What is asset finance?

Asset finance allows businesses to acquire equipment, vehicles, or machinery without paying upfront. Instead, businesses make regular payments over time, often with tax-deductible payments.

How does asset finance compare to traditional loans?

Unlike loans, which often require a large deposit and a lengthy approval process, asset finance is faster, more flexible, and often doesn’t require a personal guarantee.

Can I use asset finance to purchase any type of equipment?

Yes, asset finance can be used to acquire a wide range of business assets, including technology, vehicles, machinery, office equipment, and more.

Are asset finance payments tax-deductible?

Yes, in most cases, asset finance payments are 100% tax-deductible, making it a cost-effective way to manage business expenses.

What types of businesses can use asset finance?

Asset finance is available to a wide range of businesses, from startups to established companies, across various industries.

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Further Reading

Air conditioning unit mounted to white office wallA small business owner conducting her uk business tax calculation