Using traditional loans or cash to pay for new equipment and vehicles can put a strain on your cash flow and tie up funds that could be used to help your goal of growing your business.

How can asset finance help?

While it’s most often used as a way for businesses to scale without having the capital on hand to do so, asset finance can be a short-term & more economical solution in a range of situations. Lenders can often approve asset finance in 1-3 days, allowing a business to respond quickly to market changes or seasonal pressures.

And there are other benefits, too. Fixed repayments can be factored easily into cash flow. Your business can avoid depreciation costs. You can free up much needed capital for other expenses. It can also be used as an alternative to debt financing or a new line of credit.

Asset finance explained

There are two main types of asset finance: finance leases, also known as hire purchase agreements; and operating leases.
A finance lease allows your business to buy a vehicle or equipment on credit. Your chosen lender purchases the equipment on your behalf, and you pay it off in instalments. Once you’ve paid the last instalment, you have the option to purchase the item for a specified sum. This amount is referred to as a residual or balloon payment.

An operating lease gives your business the use of a vehicle or piece of equipment for the term of the lease agreement. After that time, ownership of the leased item reverts to the lessor.

The Australian Tax Office allows some lease payments to be treated as tax deductible expenses. Other lease payments are treated as depreciation expenses.

There’s almost nothing you can’t lease

In the past, most leased items consisted of what were known as ‘hard assets’ – tangible, physical items with a readily ascertained resale value. Think buildings, motor vehicles, machinery, heavy equipment, and the like.

Today, businesses can lease a much broader range of items, including a vast array of ‘soft assets’. These can be intangible items whose resale value is negligible, or difficult to determine. They can include kitchen and catering equipment, fitness equipment, audio-visual equipment, office furniture, security systems, telecommunications infrastructure and computer hardware and software.

Many business owners choose to lease the hardware and software they need to run their enterprises, rather than buying it outright. It’s also possible to include intangibles, such as cloud storage and network support, in an asset finance agreement.

Leasing information technology products and services can allow your business to avoid the high upfront costs that can put these assets out of reach for smaller enterprises. Information technology changes quickly, and leasing, rather than buying, can mean you’re not locked in to an ageing or obsolete solution because you don’t have the funds to replace it.

NOTE: It’s important to talk to your accountant or tax adviser before entering into an asset finance agreement to ensure you understand the tax implications for your business.

Chattel mortgages

Often called an “equipment loan”, taking out a chattel mortgage means you’re borrowing money to purchase a vehicle or business equipment outright. Chattel mortgages often follow a similar structure to a fixed rate home loan – your business gets the asset up front, but the lender keeps ownership as security until the loan is paid.

At the end of the day, asset finance is a good way to maximise cash flow and help your business grow – but only if you can service your loan agreement.

We can talk you through the range of finance options that may be available to your business. They can help you identify and secure the commercial finance that best meets the needs of your growing enterprise

If you want to know more about the asset finance options available to your business, speak to a qualified Finance Point mortgage broker today!