Introduction to asset finance
Introduction to asset finance

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

  • Introduction to asset finance
  • What is asset finance?
  • Potential advantages and disadvantages of asset based lending
  • Finance leases
  • Operating leases
  • Difference between a finance lease and an operating lease
  • Aviation finance
  • New aircraft
  • Second hand aircraft
  • Registering the aircraft
  • more

What is asset finance?

Asset finance is a method of providing financing for the purchase of particular tangible movable assets. The structure of the financing used will depend on the nature of the asset being purchased which range from cheaper, smaller items used in the day to day running of a business (such as a photocopier) to very expensive, large scale assets with a long useful economic life (such as an aircraft or ship). The finance can either be for the financing of a single, particular asset or for an entire portfolio of assets.

A key characteristic of an asset finance transaction is that the asset itself which is being financed will be the primary security provided to the financier. The revenue provided through the use of the asset will repay the debt and service the interest payments.

Practitioners advising on asset finance transactions may act for the owner of an asset (the lessor), the user of the asset (the lessee), the financiers, the manufacturers or the operators.

There are two principal types of asset finance structure:

  1. secured lending under which the lender lends money to the purchaser to buy the asset and the lender takes security over that asset (see Practice Note: Secured and guaranteed facilities—Secured loan facilities), and

  2. leasing which offers greater flexibility to financiers in many instances