Business funding is a crucial part of a successful business, whether this refers to capital expenditure or releasing funds as liquidity for operations.
There are many government-backed schemes and grant that can enable a small business.
But there are a handful of ways that a business can get started by different methods of business funding.
Business funding – types of funding
- Personal savings
- Sell personal assets
- Use credit cards
- Borrow against your home
- Take out a loan
- Asset finance and leasing
Business funding – what is a lease and why use it
Leasing is one of the best forms of business funding.
Leasing is especially useful for complex or expensive assets that require service and specialist knowledge to install and maintain.
It is useful if the asset is likely to become obsolete fast and will need constant updating.
Leasing preserves capital expenditure and therefore can release liquidity for the running of a business.
It can prevent a business accruing debt on its balance sheet to acquire assets outright.
Leasing the asset allows a relatively short-term (12 months to 5 years) use of a business asset, in which time it can be determined whether or not it is business-critical.
This also allows for flexibility on whether there is economic growth, and businesses can trial and test assets based on demand.
Leasing allows businesses to be insulated from the depreciation in the value of assets over time. Whenever assets are purchased, they immediately lose value.
Costs are fixed over the term of the lease and the lessee does not have to sell the asset at the end of the lease, meaning it does not have to take the risk of changeable residual values.
Because the equipment is funded by specialists it can be funded at good value – other forms of funding business assets can be more expensive, such as overdrafts or non-specific business loans.
Leasing in specific cases is more tax-efficient than other forms of funding.