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Asset Finance

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Asset Finance

Asset finance is a type of business loan that can help your business grow. Generally speaking, there are two main forms of asset finance:

Finance to purchase additional assets

Also referred to as equipment finance, this form of asset finance gives you access to new tools, equipment or technology for your business.

Finance secured against your existing assets

This type of finance allows you to unlock capital that’s tied up in your existing valuable assets. This could help your business with buying new assets or assist with cash flow or other business-related costs. These loans are tailored towards self-employed clients, small business owners and contractors who want the resources to help their business succeed but may not necessarily have the capital to do it at the moment. Find out more in the guide below.

Loan types available with asset finance

There are a few different types of asset finance and each one can help your business in different ways.

Finance lease

This is a contract that allows you to rent a selected piece of equipment for an agreed time frame. You make rental payments to your lender and you bear the risk of disposal at the end of the lease. While you have effective ownership of the equipment during the lease term, the asset is officially the property of the lender. A possible appeal of leasing as opposed to purchasing an asset may be the potential tax benefits for the borrower

Operating lease

An operating lease, or a “fleet operating lease”, is basically a form of rental agreement. Unlike a finance lease, the lender who owns the asset usually has responsibility for the maintenance of the asset.

Technology rentals

You don’t need to rent a vehicle when it comes to asset finance. Technology rentals work in the same way as an operating lease, but for things like computers. Depending on the nature of your business and the number of employees your business has, buying the necessary technology equipment can go from difficult to impossible. Renting your tech may be a much more financially viable option.

Hire purchase

A hire purchase loan involves you hiring and using an asset until the last payment where the title of the asset transfers to you. Unlikely finance leasing, hire purchase agreements mean effectively paying instalments towards an asset for later ownership. Hire purchase agreements may require an upfront payment of a percentage of the asset’s total value.

Novated lease

This is a type of lease where you can include a vehicle in the salary package of a business employee. The lender owns the asset and the employer and employee sign an agreement to share the responsibilities for the loan. The lease is paid out of the employee’s salary via a combination of pre-tax and post-tax deductions.

Chattel mortgage

A chattel mortgage is like a secured car loan, but specifically for vehicles that are used for business purposes at least 50% of the time. It’s a type of asset finance where you own an asset from the beginning and your loan agreement is secured by the asset you own. Chattel mortgages are usually more flexible than consumer car loans, and you can often vary the terms by opting to pay a higher deposit or higher final payment.

Secured business loan

A secured business loan, unlike the previously mentioned forms of finance, doesn’t need to be used to acquire access to an asset. It does, however, require an asset that you already own as collateral on the loan. Loans secured by an asset can give businesses quick access to capital that they need. They can be particularly useful for business owners who may be struggling with a poor credit record and find it difficult to qualify for unsecured business finance. As you can see, there are a variety of finance options and leases to choose from when it comes to getting the latest equipment, vehicles or cash flow for your growing business. However, it’s important to figure out which one will meet your needs as well as figure out what costs will be involved and how your business will be able to handle them.

How to compare your asset finance options?

Repayment schedule

Discover if the repayments that are set out in the asset finance loan are flexible and are able to meet the ebb and flow of your business’s cash flow. Also consider whether you’d be better suited to a strict repayment schedule to keep you on track.

Varied minimum and maximum loan amounts

With a minimum of $20,000 for some asset finance loans, it’s important to figure out just how much debt your business can handle. Be warned that opting for too much finance will mean paying more in interest and fees than you need to, but opting for too little will leave you unable to fulfil business finance demands.

Lease or own your new equipment

Some lenders provide the option to lease or own your new equipment, which is handy to look out for. You may prefer to own the equipment outright eventually as this leaves room for resale or leasing it yourself later down the line. However, there may be cash flow and tax benefits to leasing the equipment instead of purchasing it.

Rates

Rates are something to look out for before applying for asset finance as some rates are based on market-related rates (variable) whereas others have a set rate laid out from the start (fixed).

Fees

Application fees, monthly fees and other ongoing costs will be dependent on which loan and lender you opt for. Make sure to assess the fees associated with a loan as well as the interest rate. Lower interest rates do not always equal cheaper loans when you take the fees into consideration.