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> SPECIALISATION – ASSET FINANCE
Asset finance is a popular funding option for businesses looking to acquire assets without using large amounts of capital upfront. It’s a flexible way to purchase or lease essential equipment, machinery, vehicles, or technology that helps grow your business. Asset finance can also be used by consumers to typically purchase a new vehicle as well. Here’s what you need to know:
1. What is Asset Finance?
Asset finance is a type of lending that enables businesses to acquire assets (like vehicles, equipment, or machinery) without paying the full cost upfront. Instead, the business can spread the cost over time through leasing, hire purchase, or loan agreements, making it easier to manage cash flow.
It's ideal for:
- Purchasing large, expensive equipment.
- Keeping cash reserves intact.
- Accessing equipment upgrades or replacements.
2. Types of Asset Finance
There are several types of asset finance to suit different business needs. The main types of asset finance are:
- Chattel Mortgage: This is a loan agreement where the lender provides funds to purchase the asset, and the asset itself acts as security for the loan. You own the asset from the start, but if you default, the lender can repossess it. This is common for vehicle finance.
- Asset Buyback: This is when the business will purchase the asset with business funds and seek reimbursement after the purchase is completed. Generally the finance application needs to be completed within 30days or purchasing the asset. Most businesses will use asset buyback in the following situations:
- Trying to purchase the asset before the end of the current financial year and there is not enough time to have the finance in place before the end of the financial year
- Importing an asset from overseas. If an asset is purchased from overseas you might have to make payment in full on the asset on delivery of the asset into the country. If the business doesn’t have suitable trade finance in place than asset buyback can be used to establish the finance for reimbursement of the purchase.
- The business paid cash for an asset but then realised that they needed the cash to invest in other business needs.
3. Benefits of Asset Finance
- Preserves Working Capital: By spreading the cost of assets over time, businesses can keep their cash reserves intact for other operational needs.
- Fixed Payments: Repayments are predictable, which makes it easier to manage budgets and cash flow.
- Flexible Terms: You can often tailor the finance to suit your cash flow needs, with options to either purchase the asset outright or lease it for a set period.
- Access to the Latest Equipment: Asset finance allows businesses to regularly upgrade their equipment without having to worry about large upfront costs.
4. Key Considerations
- Interest Rates: Just like any loan, interest rates will apply. It's important to compare rates across different lenders to ensure you're getting the best deal.
- Asset Depreciation: Some assets, especially vehicles and technology, depreciate over time. With chattel mortgages, depreciation is your responsibility.
5. Common Assets Financed
Businesses can use asset finance to acquire a variety of assets, including:
- Vehicles: Cars, trucks, and commercial vehicles.
- Machinery: Industrial, construction, or manufacturing equipment.
- Technology: Computers, servers, and telecommunications systems.
- Office Equipment: Furniture, printers, and other operational tools.
6. Tax Implications
Asset finance can offer tax benefits, such as deductions for interest payments, depreciation, and lease payments. The tax treatment depends on the type of finance used, so it's advisable to speak with your accountant to understand how asset finance affects your business’s tax position.
