Asset-based financing

Asset-based financing is a form of financing in which the collateral is the financed asset. The most typical example of this is leasing. Company cars, production equipment and equipment can also be financed with a lease.

Asset-based financing is a "loan" solution in which the lender considers not only the risk of our business when evaluating the upon credit approval, but also the borrower's assets. The credit risk is primarily calculated based on the properties of the financed asset, and the asset is the collateral in case the company is unable to pay. 

Asset-based financing most often means leasing. The most typical example of such financing is car leasing. 

A significant number of cars on the road, especially newer ones, are "company cars", which usually means that they are leased by a company. With this type of financing, the financing financial institution does not only examine the creditworthiness of the enterprise. The financing financial institution also looks at the car's value, quality, and value stability when establishing the conditions. Of course, they can give some discounts to customers who seem reliable, and there are also sales periods, but basically the value of the car determines how much you have to pay each month. 

The car is also the collateral. So if the company can't pay, the car will be taken away. The financier's security is therefore the financed asset itself. Of course, the situation is the same even if it is not a car, but, say, a line of machines or computers. 

A big advantage of asset-based financing is that we can put the desired asset into use with less own funds. You don't have to pay the full cost right away. It can also be a big advantage that the company does not acquire ownership rights here. The monthly lease fee is the price of a service. All this means that the leasing fee can be accounted for as a cost in most cases. There are exceptions to this, it is worth listening to the accountant when planning such a purchase. 

Of course, asset-based financing also has its risks. What we think our company can extract today may turn out to be an insurmountable obstacle three years from now. The own funds that a serious asset can be taken away with a certain amount of personal power does not always mean that the company has and will have the money for that asset if things turn a little worse later. It is worth planning carefully for such purchases. You are only allowed to dream as much as, after waking up, based on the financial plan and our cash flow table, it seems possible to undertake.