What are financial assets? A simple guide

Small businesses in the first quarter of 2024 raised over £2 billion in equity funding, with UK businesses holding approximately £440 billion in cash reserves. If you’re trying to calculate out what proportion of that statistic your small business accounts for, you’re trying to work out your financial assets. But what are financial assets and why should they matter to you? 

What are financial assets? 

In a nutshell, a financial asset is something that holds financial value and can provide a future benefit. It’s a little like a bank statement — you own it, it could bring you hard cash in the future, but at the moment it’s just numbers on a screen.

Comparatively, a physical asset is an item you own, like property, a vehicle, or piece of equipment and an intangible asset is a non-physical asset you own, for instance, a trademark or easily recognisable brand logo.

Examples: Examples of financial assets include stocks, bonds, bank accounts, and shares. Cash, which is essentially you holding a currency in the country you live in, shares in your own company, and the money customers owe to your business in the form of unpaid invoices all count as financial assets for businesses. 

Key Characteristics: Financial assets are usually liquid, meaning they can be turned into cash (or are, themselves, already cash, in the case of money you may have in the bank) quite quickly. For instance, a property you own would generally require quite a long selling process which could span several months, potentially even years, whereas stocks in your portfolio could generally be sold in a matter of days, if not minutes. 

Financial assets are usually intangible, so investments in gold, property, or precious metals usually don’t count as financial assets. Their value often changes based on market shifts, for instance, the value of cash can go down as inflation rises (which is true for the value of unpaid invoices too), whereas the value of a stock could rise as the company’s performance improves. 

👉  Find out how to value a business. 

Types of financial assets 

Financial assets can be split into a few general types of assets. Here are some of those types.  

Cash 

You’re thinking about money in the bank, right? If so, you’d be correct, but there are also other forms of assets that function similarly to cash, and so can be categorised under cash or “cash equivalents.” These include unpaid invoices, cheques that have been received but not deposited yet, foreign currency, and prepaid cards. 

Equity 

Equity is partial ownership of a company. As a company director or founder, you may own some of the shares of your own company, but it’s also possible your business owns stock, which is a portion of another business. 

Debt

Debt is another type of financial asset, with bonds forming the main bulk of this asset type. Bonds are generally lower risk investments which involve your business loaning money (either alone or as part of a larger collective) to governments or corporations. The interest gained in bonds is interest paid by those governments or companies in return for borrowing the money. Loans and treasury bills are further examples. 

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Why do financial assets matter to my small business?

Financial assets held by your business can be used to make smart investment decisions. Let’s say you decide to take stock of your current financial position and realise you have a lot of money tied up in company equity — far more than is needed to meet your liabilities. You could decide to free up some of those assets to invest in growth and operational expansion through, for instance, purchasing new equipment, acquiring another company that offers a similar service but in a new vertical, or investing in marketing initiatives. 

Alternatively, financial assets can also be used as a way to build up a safety net without letting the money “go to waste.” Some business owners don’t like to leave money sitting in the bank, as they feel that creates an opportunity loss. Financial assets like stocks can be a helpful way to grow your finances. 

However, be aware that the flaw with this argument is that financial assets hold varying degrees of risk — stocks can go down, as well as up, and in times of economic uncertainty, when that safety net is most essential, you may find that your stocks have depleted. General practice says it’s better to have a diverse portfolio, with a wide range of asset types on hand. 

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Find business finance with Funding Options by Tide

We help facilitate a range of loan types, including asset finance, bridging loans, and commercial mortgages. Over 18,600 eligible businesses have trusted us with their financing needs, and we’ve helped them gain over £800M in funds. Wondering if we can do the same for your business? Tell us a bit about your situation and needs using the link below and we’ll be in touch soon to let you know if you’re eligible for up to £20M in finance. 

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Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.