What is Asset Finance?
Asset finance is the term used to describe the conversion of assets into cash, with the assets being used a security against the loan. Asset Financing allows companies to use accounts receivable and inventory balance sheets to obtain a loan, and the security interest on the assets is then provided by the borrower to the lender. The most common forms of asset finance are money loaned on accounts receivable, and money loaned against inventory.
Asset financing means that if the loan money is not repaid by the borrower, then the assets against which the money was loaned can be taken by the lender. It is similar in this way to a mortgage, with the main difference being that these sorts of loans are extended to businesses only – something that is not common in other loans. Common assets that are tied to these loans tend to be machinery and other equipment. The benefits of asset financing to any size business is that it allows them to recuperate from cash shortfalls, finance new projects easily, buy machinery to help them take on a larger work load, and just generally maintain an uninterrupted cash flow that allows them to carry out productive business activities unhindered.
What is Construction Finance?
Construction finance is another kind of asset finance and with this type of finance, money is borrowed in order to pay for building construction. This type of finance is classified as a self-build mortgage in the UK but known as a construction loan in the USA. It is a value added loan where the proceeds are used to construct a building of some sort, usually a house. This is quite a specific loan and is only to be used for construction purposes. It contains factors such as interest reserves, and repayment usually starts when the construction of the building is complete. The governing rules of this type of loan are above those of a normal loan in order to ensure that the project is completed correctly and quickly so that the repayment process can begin.
Both asset and construction finance have come in useful for many business and home owners, allowing them to complete, carry on and resurrect tasks and businesses that otherwise would have remained non-starters. Many financial institutions and private lenders offer asset financing schemes that are tailored to meet the demands of a particular situation. Borrowers can access these schemes by pledging their existing assets and agreeing a payback scheme with the time frame to be included in the scheme contract.
