Asset Finance v An Overdraft

Many businesses take on a temporary overdraft to maintain cash flow then find it’s a tough habit to break. Before they know it, financial control is effectively in the hands of the bank, with potentially devastating effects. The alternative? Asset finance.

An overdraft alternative

An overdraft has traditionally been one of the most popular ways for businesses to maintain cash flow in difficult times. Often viewed as a temporary measure by business owners, many soon find that going overdrawn becomes a tough habit to break.

The biggest problem with business overdrafts is that they effectively put financial control in the hands of the bank. If the bank decides that the risk is too great, the overdraft facility can be removed or reduced at any time. When a business already has cash flow issues, this can have a devastating impact and even, in some cases, lead to insolvency.

However, a recent decline in overdrafts to SMEs suggests that more businesses are looking for alternative finance to support cash flow. In particular, a growing number are using asset finance as a flexible, adaptable way of making use of business assets they already have, such as machinery and vehicles. The value of these assets can be unlocked and, unlike overdrafts, can’t then be removed or reduced at a moment’s notice.

Published: March 2