Advantages and disadvantages of asset finance
Advantages and disadvantages of asset finance

The following Banking & Finance practice note provides comprehensive and up to date legal information covering:

  • Advantages and disadvantages of asset finance
  • Advantages
  • Disadvantages
  • Further reading

Advantages

  1. Cash flow benefits for lessee— the operating cash flow of the lessee is likely to be in a stronger position than under a typical loan structure as the lessee will be able to benefit from the use of the asset that it requires without having to incur a large capital expenditure up-front in order to purchase the asset. The asset will be paid for by the lessee from the revenue that it earns in operating the asset. The cost of the asset will be more equally spread across the useful economic life of the asset with smaller lease payments which clearly aids the cash flow of the lessee

  2. Tax advantages—the lessor will acquire the asset and can benefit from capital allowances in respect of this purchase. In addition, the lessee will also benefit as this saving will be passed down to them in the form of reduced monthly rental rates

  3. Improved security position for finance provider—under an asset finance transaction, the finance provider will be in a better security position than under a typical loan structure as it will be the legal owner of the asset rather than simply a chargeholder. As a result of this stronger security position, they are likely to provide more flexible financing structures and, potentially, higher levels of funding to the lessee

  4. Greater certainty for lessee—a typical asset

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