How To Fund Your Business With Asset Finance

Asset finance
Finance

The right Asset Finance can help you save time and money to invest in growing your business. It also allows you to reduce the risk of owning obsolete equipment and the potential various tax benefits.

But before utilising Asset Finance, it’s important to know the general information surrounding it.

What is Asset Finance?

Asset financing is for business owners who are looking to get funds to acquire assets and equipment to grow their business. It generally involves a regular payment for use of the asset of time to avoid paying the full cost of the asset upfront.

Here are some questions you may want to ask yourself to know your specific loan needs:

  • What will be the outcomes of securing this asset or equipment?
  • How much capital do I need to grow my business?
  • When do I need to smooth the bumps in my cash flow?
  • What are the tax outcomes of asset financing?
  • How long will I need the equipment and will I need to upgrade it?
  • Is technology rapidly changing in my industry?
  • Do I want to ‘finance to own’ or ‘finance to return’ my asset?

Asset finance options typically include Chattel Mortgages, Novated Leases, and Finance Leases. Each one of them is best used for different commercial circumstances so it is important to talk to an expert when you consider your options.

These days, Chattel Mortgages are by far the most popular form of asset finance available in the marketplace.

Here’s an overview of the different types of Asset Finance.

Types of Asset Finance

  • Chattel Mortgage

When you take out a Chattel Mortgage, you own the asset from the outset and your loan agreement is secured by the asset. You can customize your loan payments by choosing the term, usually up to five years. Other payment options can include a deposit and a larger final instalment known as a balloon payment. You can also structure payments to free up cash flow at the times of year you need it most.

  • Finance Lease

A Finance Lease is a type of Asset Finance in which the financer has the legal ownership of the asset however you bear the risk of disposal of the asset at the end of the lease. This type of lease allows businesses to acquire their needed latest vehicle or equipment without tying up a large amount of capital.

You have the choice whether lease payments in advance or arrears and terms up to five years. Residual value is required in line with the asset’s use and the Australian Taxation Office’s guidelines.

  • Novated Lease

If you’re looking for a way to include a vehicle in your salary package, a Novated Lease is the type of Asset Finance for you. The financier owns the asset, while you and your employer sign a novation agreement to share the responsibilities of the loan. The usual loan terms range from 12 months to 5 years.

Your monthly lease payments and final residual payment are based on your circumstance and guidelines set by the Australian Taxation Office. If you are interested, talk to your HR department for Novated Lease options.

There are a variety of commercial loans and leases available in the market. Each of them is governed by certain conditions and circumstances which you may not be eligible for.

 

Things to consider

  • Benefits of Asset Finance

When you compare Asset Finance to traditional forms of finance, these are the benefits that you can enjoy:

  1. Acquiring assets for your business
  2. Maximising depreciation tax benefits
  3. Eliminating unexpected costs
  4. Freeing up capital
  5. Improving cash flow
  6. Reducing upfront costs

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