Jon Maycock, Commercial Director, Propel Finance
When it comes to sourcing funding to acquire assets for your company, the end goal is to get the best business outcome. Whether that’s low repayments, flexibility, expertise or the ability to secure funding immediately, it’s important to consider all aspects of a finance solution before making a final decision.
Specific and dedicated finance is always better in practice. It’s tailor-made to a customer’s needs, helping business owners make more informed decisions when it comes to their company finances and assets. It can even be tax advantageous. Most importantly, expert finance companies don’t try and fit customer needs around a facility: they fit the facility’s needs around the customer.
However, how can a business know whether to go down this route – or simply apply for a traditional loan?
Potential pitfalls of a loan
Typically, loans come with a long list of terms and conditions that need to be addressed, such as the provision of quarterly management information. Alongside the huge administrative effort this invariably requires, there’s the question of flexibility; if the business isn’t using all the funds made available, it will still have to pay interest on them. With a loan, businesses are also often required to take out personal guarantees, a key consideration when compared to other forms of finance.
As such, it’s worth exploring the benefits of the asset finance route and how it can help small business owners secure the right kind of funding to meet their needs.
Each and every asset being utilised by a business demands a payback from either generating additional income or by creating extra savings and efficiencies. Asset finance allows businesses to use the latest and most efficient assets available. By offering low-deposit funding, asset finance can help businesses conserve the working capital they otherwise would have invested upfront, allowing scope to invest in other areas of the business. Flexible repayments can be matched to budgets, trading cycles and seasonality. Fixed interest rates across the whole term ensure certainty of budgeting, vital in times of constant change. Importantly, by using specific finance related to the assets concerned, existing credit lines, such as bank overdrafts and loans, remain untouched and are still available for business use.
Additionally, for eventualities where supplementary working capital is needed, there is also the option to refinance existing assets to generate required funds.
The security aspect of asset finance is the key differentiator when it comes to funding options. Unlike a traditional loan, with asset finance, the equipment itself acts as the security against the loan – meaning that personal collateral, such as directors’ houses, are not at risk if the business is unable to make repayments.
Lease over loan
Companies also have the opportunity to lease assets rather than purchase them. This means assets can generate income whilst they are being used, so can effectively start paying for themselves straight away.
As a by-product, leasing eliminates the burden of asset disposal. If the asset belongs to an asset finance provider, this puts the responsibility for disposal in the hands of a third party, with the term of agreement tailored to the anticipated useful life of the asset. And with the potential for rapid rates of corporate change and innovation, leasing provides businesses with the ability to upgrade their assets easily, without the difficulties or expense of changing a loan.
In essence, opting to lease resources removes any ongoing responsibility for funding assets once they have come to the end of their useful economic life.
The benefits of specialist finance
According to the Finance & Leasing Association (FLA), asset finance in new business (primarily leasing and hire purchase) grew by 6% in 2019 to reach a record annual total of £35.7 billion.
Largely, the reason behind this is the specialist sector knowledge and proficiency of asset finance houses. With an in-depth working understanding of the assets themselves, asset financers can use their expert understanding of asset values to provide specialist evaluations; and with widespread industry knowledge, can secure their customers preferential deals from established vendors.
As such, asset financing is about much more than just the cash. By capitalising on the advantages of a relationship-based funding approach, asset financiers can partner with small businesses to boost efficiency, improve performance and secure the ongoing viability of their enterprise.
WE NEED MORE CRYPTO COMPANIES TO IPO TO INCREASE DIGITAL ASSET SCRUTINY AND ADOPTION
Stephen Ehrlich, Co-Founder and CEO at Voyager Digital
As a publicly listed digital asset trading business, the recent announcement of Coinbase’s IPO has naturally put a spotlight on us at Voyager Digital and we welcome their move as it will improve trust, transparency and above all, adoption of digital assets. It is imperative that the crypto asset space ups its game as there’s still a great deal of scepticism and concern in respect to their legitimacy or even purpose. This scepticism comes even at a time when several well-known household institutional names have entered the space in 2020.
But there are more than just signs that the mood is changing, with even some of the die-hard naysayers starting to accept that Bitcoin and crypto assets are here to stay.
The regulators are slowly coming to the table with the introduction of new rules, for example the US’s SEC is looking to impose greater KYC (Know Your Customer) on crypto wallet providers and France, a vocal advocate of the emerging blockchain technology and digital asset space, is looking to implement anonymity measures to fight money laundering activity.
Being a publicly listed company naturally provides an extra level of transparency and today there are quite a few digital asset focused public companies ranging from Bitcoin miners, crypto investment companies and in Voyager Digital’s case, crypto brokerage firms that allow investors to buy and sell crypto.
Over the Christmas and holiday period Bitcoin has continued its stratospheric rise showing further evidence that investors are hungry for alternative assets. With traditional markets being closed for public holidays, people have had time to read, research and because crypto-assets trade 24/7 they can take action. So while many around the world will have been trying to forget the trials and tribulations of a torrid 2020 by gorging on turkey or goose and opening presents, many investors will have been buying Bitcoin.
This is a trend we expect to continue well into 2021 and beyond. As people become more accepting of the digital asset space and adoption increases, more crypto based businesses will pursue the IPO route and become public companies. This process should become a self-fulfilling prophecy, bringing a greater proportion of the space under the regulatory regimes of stock exchanges and allowing anyone to dig deep into the business, providing greater scrutiny.
But this expansion will present regulators across the globe with multiple challenges. As Bitcoin and other crypto-assets are borderless, it allows brokers such as Voyager the ability to expand quickly, providing secure trading platforms to meet the demand of wider adoption. Regulatory hurdles will be overcome though as we are already seeing forward-thinking Central Banks and established regulators embracing this new asset class and the technology underpinning them. By working with regulators, established crypto businesses and in particular publicly listed ones, can help forge the way for the industry.
The future for crypto assets, Bitcoin in particular, looks bright and we look forward to playing a major role.
THE POTENTIAL OF PaaS IN FINANCIAL INSTITUTION INNOVATION
By Barry Tarrant, Director, Product Solutions, Fiserv
Financial institutions continually balance competing demands for investment in technology maintenance, compliance, innovation and the delivery of value-added services. Delineation between the “need to have” and “nice to have” is difficult when everything feels like a “must have”. For many institutions, outsourcing strategic services such as payments can enable them to strike a better balance of their investment pool, by enabling more efficient operations that allow for more investment to be focused on rapid delivery of new capabilities and innovation that adds incremental value.
Shifting focus to innovation
Financial institutions are facing change on multiple fronts. Customers have quickly come to expect continual product innovation and a consistent experience across multiple channels. And the industry is experiencing structural changes, such as the convergence of payments.
We are witnessing challenger banks and fintechs fully embracing digital tools, such as the cloud, to optimise operations and create transformational customer experiences. Increasing choices available for customers to initiate payments across card and non-card payment rails are leading to further demand for innovation and change. As a result, many financial institutions are reviewing the costs and operational effort required to maintain payments technology in-house and considering how new innovations can be implemented.
Financial institutions have an opportunity to leverage shared innovation to stay ahead of this competition. This can come in the form of payments-as-a-service (PaaS). PaaS can also bring additional benefits such as savings in capital costs, opportunity costs, compliance costs, as well as reduction in one-off costs associated with infrastructure or technology upgrades.
The case for PaaS
Outsourcing payments to a PaaS provider can allow a financial institution to focus more time and effort on customer innovation and experience that drive incremental value. It could also lead to other financial benefits associated with reduced capital expenses, such as increased free cash flow. This is particularly important as financial institutions navigate the current environment and capital investment is being analysed under a microscope.
Another benefit to outsourcing to a PaaS provider is the ability to leverage its expertise. While investing in a robust platform is one of many areas for financial institutions to consider, it is the primary business for PaaS providers. Therefore, it is in the provider’s interest to continually invest in the platform and recruit qualified personnel to support and innovate the technology.
Geographical scale can also provide further opportunities to add value. A PaaS provider with clients around the world enables them to deliver innovation on a global scale, and this can be redeployed elsewhere quickly and at a lower cost than custom developments. Additionally, a global payment processing network enables providers to gather useful insights, such as new payment types, changes in consumer behaviour, and threats, which could then be used for further innovation.
As payments become more commoditised, and traditional payment revenue streams decrease, the case for retaining payment processing in-house may become narrower. By adopting PaaS, financial institutions can benefit from significant cost savings, maximise retained payment margins, and rebalance their resource and investment pool, which can be used to focus on more strategic and valuable activities.
While the business case for financial institutions to adopt PaaS is compelling, some remain reluctant to do so due to certain ‘industry myths’. For example, there are concerns that outsourcing data is inherently risky, however, the reality is quite the opposite. PaaS providers have the scale, resources, and practices to invest in key areas such as cybersecurity, whereas keeping operations in-house could in fact lead to greater risks around data security, especially if resources are limited.
Aside from costs, experience and expertise in delivering transformation of payment technology should also be considered as part of the decision to adopt PaaS. Most IT managers within financial institutions are likely to have delivered few major transition projects in their entire career. However, teams at a PaaS provider will collectively have likely overseen many. They also develop and update a range of specialised skillsets and toolkits to provide additional expertise and a seamless service. The ability to deliver transformation effectively is critical to benefits realisation and PaaS providers are likely to be better equipped to do so.
Innovate and differentiate
The current pandemic has shifted payments innovation into the spotlight. To fully understand how changes can be made and implemented that respond to this shift, a comprehensive assessment of existing technology, and how it will affect business in the long-term, will be needed. Adopting PaaS brings a wealth of financial and operational benefits, enabling a financial institution to be agile and strategic, so that it can devote more resources to innovation, provide services and experiences that customers want, and differentiate from the competition.
WE NEED MORE CRYPTO COMPANIES TO IPO TO INCREASE DIGITAL ASSET SCRUTINY AND ADOPTION
Stephen Ehrlich, Co-Founder and CEO at Voyager Digital As a publicly listed digital asset trading business, the recent announcement...
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