What Are Fixed Assets?

• Fixed asset is an accountancy term. It refers to assets and property that cannot easily be turned into cash.

• Examples of fixed assets are land, buildings, fixtures, fittings, plants and machinery (industrial).

What Is A Fixed Asset Loan?

• It is a loan to buy a fixed asset.

• The loan is secured by the fixed asset you are buying. In other words, the fixed asset becomes the collateral for the loan.

• If you are unable to service the loan, the lender can seize your fixed asset.

• When you buy business premises or a factory, you can mortgage your property to the bank or lender. A mortgage is a type of Fixed Asset Loan.
  

Am I Eligible?

• The key to getting a Fixed Asset Loan is convincing the lender that the item will help you to generate more profits.

• The bank or lender will determine your credit worthiness by examining your:  

• long-term business prospects
• cash flow
• profitability
• capital structure (debt vs. paid-up shares)

• The bank or lender will also consider other qualitative factors such as:

• transparency of your business operations
• credibility
• integrity of the management

How Long Is The Repayment Period?

• Usually, Fixed Asset Loans are long-term. The repayment period can range from 1 to 10 years.
  
  
• Every month or quarter, you repay part of the principal sum borrowed and part of the interest due.

What Are Some Of The Terms?

• The loan amount will vary with the value of the item you are purchasing.

• The loan repayment period is usually based on the bank's assessment of the time it will take for your new item to generate profits.

• The interest rate is usually fixed for the entire duration of the loan. This will help you determine exactly how much money you will need to service the loan.

• Sometimes, the lender may require you to put up a personal guarantee or additional assets to secure the loan. It depends largely on his/her assessment of your credit worthiness, or ability to pay back the loan.

What Are Some Of The Advantages And Disadvantages?

Advantages

• Fixed Asset Loans are relatively stable and fixed. It is possible to plan repayment and work long-term loans into your budget.

• They can help you acquire assets that you would otherwise not be able to afford.

• The asset you are buying becomes the collateral for the loan.  

Disadvantages

• The interest rate for long-term loans is higher than short-term loans.

• The loan application is usually very detailed. The lender will require a lot of information on your purchase and your business' finances.

• If you breach terms of the loan, you may have to repay the entire loan immediately.