As a business owner, it’s likely you have no shortage of competing demands on your capital. In your quest for growth, you might want to hire additional staff, move to bigger premises, increase production capacity, diversify your product range or spend more on marketing.

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.

Asset finance can be a more economical option. It can allow you to obtain the assets you need to expand without incurring the high upfront costs associated with buying vehicles and equipment.

Instead of acquiring an asset outright, asset financing allows you to spread the expense into more manageable, monthly payments over an agreed term.

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. 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.

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.

Lease terms can vary from as little as 12 months to as long as seven years. Soft assets generally have shorter lease terms while hard assets, which depreciate more slowly, are typically leased over longer periods. The longer the lease term, the lower the monthly repayments will be.

Want to know more?

Having ready access to the assets you need to run and grow your business is important. Without it, you may not be able to take advantage of opportunities to expand, diversify and build your bottom line.

Using asset finance to acquire items can help you spread the cost of expensive items over a manageable period and reduce the chances of a cash flow crunch derailing your growth.

A broker 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.

For more information or assistance with your finances please call us on 08 8451 1500

Cheers,

Urbantech Finance
Adelaide Mortgage Brokers + a lot more…

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We hope you enjoyed our post: How asset finance can help your business grow

Small businesses can always benefit from an upgrade to existing equipment or from purchasing the very latest technology or machinery. However, the reality is that many business owners simply don’t have enough working capital to consider an outright purchase – making equipment finance an advantageous option.

Even if you can afford to invest significant cash into new assets, you are likely to be left with less capital to finance regular operations and explore new growth opportunities.

According to the Commercial Asset Finance Brokers Association of Australia (CAFBA), the asset finance market in Australia is worth $100 billion in receivables, at any given time, and around $40 billion in new equipment loans are written each year.

What are the most common types of equipment finance?

In short, vehicle and equipment financing enable you to purchase vehicles, machinery, office equipment and other requirements for your business on either a lease or rental basis. There are several options available for funding your business needs:

• A vehicle/equipment loan (also referred to as a Chattel Mortgage) is the option chosen by most businesses to purchase equipment, and comprises 78 per cent of the finance market. Throughout the loan, your business owns the asset, and the bank uses it as security, in case you default on your repayments.
• An alternative option to an equipment loan is taking out an equipment finance lease, where the bank or lender would own the equipment and rent it to the business for an agreed term at a fixed rental rate. Once the agreed term expires, you have the option to return the equipment, refinance the equipment or purchase it outright.
• Opting for a hire purchase loan means the bank or lender owns the equipment and you make repayments on it until the end of the term, when the ownership transfers over to you. The world of equipment finance can be tricky to navigate, so read on for a list of the top five questions every small business owner should ask themselves before taking out equipment finance.

Depending on which loan structure you choose, tax implications may apply, so it’s important to talk to your accountant or financial adviser about any business lending and your specific financial circumstances.

Knowing how your business’ bottom line will be impacted when you take out equipment finance is important; however, this can be difficult if your business is affected by seasonal cash flow fluctuations. Tools like our Equipment Finance Repayment Calculator can be helpful in this scenario, and many finance providers now offer the opportunity to match repayments to periods of higher cash flow.

Is an equipment loan or an equipment lease right for me?

Choosing the best way to pay for equipment can depend on the expected productive life of an asset. If you will need an update after a relatively short period of time, leasing equipment might be the better option. This way you avoid having to finish paying off an asset that is now obsolete, which can put stress on cash flow. If the equipment is likely to generate value for a long period, an equipment loan may suit you better.

Should I use a broker?

In addition to helping you with the equipment loan application process, finance brokers also have access to a wide range of lenders and finance products, helping you secure the most competitive interest rates, and can advise you on which option that works for your business.

Who is responsible for the equipment during the finance period?

Establish from the outset of the agreement who is responsible for maintenance, repair and replacement of the equipment during the finance period. If damage or fault occurs, you don’t want to get caught out with unexpected costs.

Are there establishment fees involved?

Establishment fees can easily run into the hundreds, so it is important to be aware if there are any when you are deciding which finance option is right for you.

What happens at the end of the finance period?

Before signing an agreement, it is important you understand what happens at the end of the finance period, as scenarios can vary depending on the finance option you choose. For example, if you are leasing the equipment, once the agreed term expires, you have the option to return the equipment, refinance the equipment or purchase it outright.

For more information or assistance with your finances please call us on 08 8451 1500

Cheers,

Urbantech Finance
Adelaide Mortgage Brokers + a lot more…

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We hope you enjoyed our post: The Small Business Owner’s Definitive Guide To Equipment Finance

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Cheers

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Urbantech Group
Adelaide Mortgage Broker +plus more…

We hope you enjoyed our post: Buying a new car – bag a bargain before Christmas!