Simon Goldie, Director of Advocacy
Last week, the British Business Bank (BBB) issued its annual report on small business finance, which highlighted asset finance as an increasing source of funding for small business.
If you missed it, we have already commented publicly here.
The report showed that SME asset finance new business increased by 11% in 2022 to £22.5 billion. This was the highest level on record and 9% above the pre-pandemic total in 2019. It followed a rise of 24% in 2021. The BBB’s commentary noted:
“Asset finance plays a significant role in helping smaller businesses invest and grow. Business investment is yet to recover to pre-pandemic levels and the availability of asset finance will be crucial over the coming years for both the recovery of UK business investment and achieving net zero targets. As such the British Business Bank will continue to support asset finance providers via products such as ENABLE Funding and the Investment Programme.”
All of this indicates that SMEs have a greater awareness of what asset finance is and where to get it. Which is very good.
To test how universal this awareness was, I decided to pose those questions to Chat GPT. If you have missed the news on Chat GPT, it is a newly-released piece of artificial intelligence software.
This is what it said -
“Asset finance is a type of financial arrangement where a company borrows money to purchase or lease assets that it needs for its operations, such as machinery, vehicles, or equipment. The assets themselves serve as collateral for the loan, so if the borrower defaults on the loan, the lender can repossess the assets to recover its funds.
“There are various types of asset finance, including:
- Hire purchase: This is a type of asset finance where the borrower makes fixed payments over a period of time to purchase an asset. The borrower does not own the asset until the final payment is made.
- Finance lease: This is a type of asset finance where the borrower leases an asset for a fixed period of time and makes fixed payments. The borrower does not own the asset, but can usually purchase it at the end of the lease period.
- Operating lease: This is similar to a finance lease, but the lease period is shorter and the payments are lower. At the end of the lease period, the borrower can return the asset, purchase it, or extend the lease.
“Asset finance can be beneficial for businesses because it allows them to acquire the assets they need without having to pay the full cost upfront. This can free up cash flow for other expenses and investments. Additionally, asset finance can offer tax benefits, as the interest paid on the loan may be tax deductible.”
Aside from calling the finance a loan, that is an impressive explanation. So, if in the near-future a robot comes knocking to ask for a lease, don’t be surprised.
Published 03 Mar 2023