Finances play the biggest role in investments, and it’s impossible to own assets without money in Kenya. Several factors, such as location and size, determine land prices. Besides the price, there are additional costs in land buying that you must factor in to sponsor a smooth transaction.

Are you interested in buying land, but you don’t know which is the most convenient way to go about it? Don’t worry; I will be discussing asset financing in this article, and I believe the information will come in handy, so keep reading.

What is Asset Financing?

Asset financing is where an individual requests a financial institution to buy assets on their behalf with their existing inventory, short-term investments and accounts receivable as their security. A sacco, bank, or chama can do the financing. The money is given with a promise of future payment.

Asset financing is a good option when buying land for various reasons. It will help you buy land in the event that you don’t have the money to acquire the land. Additionally, compared to vendors, the terms of financial institutions are better.

Step By Step Guide to Asset Financing.

1. Agreement between the seller and the buyer on the terms of buying. The seller’s lawyer drafts this agreement.
2. The buyer takes the agreement to the financial institution and requests to be financed.
3. The banking institution checks the buyer’s bank statements to establish their credit score (Buying power).
4. A valuer is sent to determine the asset’s value if the bank statement satisfies the institution.
5. The buyer pays a small amount to commit themselves.
6. The banking institution’s lawyer begins the purchasing process and transfers the documents to the buyer’s name.
7. The institution releases money to the seller, and the deal is sealed.

Does Asset Financing Have Advantages and Disadvantages?

Yes, it has, and here is a breakdown of its pros and cons.

Advantages

1. Reduced Costs and risks – Investing in land using financing effectively funds your purchases and greatly reduces risks attracted by ownership,
2. It is Fast – Unlike other ways of acquiring land, asset financing has no hidden costs and is fast. Provided the security is supportive.
3. Expertise – Most asset finance officers in banking institutions are specialized. This means they boast enough knowledge in the industry and will guide you accordingly.
4. Monthly payments – In asset financing, you can spread the cost of your piece of land to accommodate monthly payments within the agreed time frame.

Disadvantages

1. The burden of the valuers and advocates’ fee is yours. And sometimes, it can be huge.
2. Risk of repossession if you fail to keep up with the monthly payment plan.
3. The asset belongs to the lender until you clear the whole debt.
4. The cost of maintaining the asset is yours, even if your lender retains it until you are done with payment.
5. Asset financing is more expensive than using individual funds because of the interests attracted.
6. Some banking institutions require an upfront payment as a deposit.

What Assets Can One Finance?

In asset finance, there are soft assets and larger assets. However, when purchasing land, banking institutions require larger assets such as machinery and equipment, vehicles etc.

Asset financing is a great way of owning properties in Kenya. However, it is paramount that you first identify the piece of land and know clearly what you need it for before going that way. Additionally, you need to research the options of financing institutions and find out their repayment plans and interest rates.

I believe this information has opened your mind to the possibilities waiting for you in real estate investments.