Asset Finance

What can you purchase with asset finance?

Generally speaking, you can purchase most major business assets using this type of finance, apart from property.

Items commonly purchased using asset finance include: Motor vehicles, Computers and IT equipment, Office furniture, Heavy machinery: such as harvesters, tractors, Commercial kitchen equipment, Shop fit-outs, Medical and dental equipment

How long do you intend to own these assets for?

There are four main types of asset finance: equipment loan, hire purchase, finance lease and novated lease. Depending on the type of finance you choose, you will either own your asset outright at the end of the agreement, or you will have the option to renew your lease with upgraded equipment.

Knowing whether you need to upgrade your equipment will help you to choose the type of finance that’s right for you.

What are the different types of finance?

There are a number of ways you can use finance to either purchase or lease assets for your business. These are the four most common options available for business owners.

Hire purchase

This type of finance allows you to hire an asset until it is paid for in full. Once the final payment is received, ownership is transferred to you, which makes hire purchase arrangements ideal for businesses that want to own their assets outright. You have the option to tailor you loan period and deposit to suit your cash flow requirements, and you can also opt to make a balloon payment at the end of the contract.

Equipment loan (also known as a chattel mortgage)

This is a fixed interest loan that works similar to a hire purchase agreement, but you own the asset as soon as the loan commences. Your asset secures the loan and you can decide your loan period, deposit and whether you want to make a balloon payment. 

Finance lease

A finance lease allows you to rent an asset and upgrade at the end of your contract. This arrangement suits businesses that need to frequently upgrade their vehicles or equipment, but don’t want to restrict cash flow by tying up large amounts of capital. Most finance lease agreements do have flexible payment options.

Novated lease

This agreement suits companies that provide staff salary packages. A novated lease can be anywhere between 12 months and five years and in that time lease payments are taken from the employee’s salary. The financer owns the vehicle, but there is usually an option to purchase the car at the end of the lease.  

What repayments can you afford?

Most types of asset finance are flexible, allowing you to choose the length of your agreement, the frequency of your repayments and whether or not you want to pay a deposit. The option to make a balloon repayment at the end of loan can also be beneficial for businesses that need to take advantage of lower repayments until their cash flow improves.

When structuring your finance arrangement, take these options into consideration so you can better manage your cash flow.

What are the tax benefits of asset finance?

Your tax benefits will depend upon type of finance or lease you choose. Generally speaking, you can claim GST credits from the interest and fees on most loans and leases. If you have an equipment loan, you will not be required to pay GST on loan repayments.

For employees, novated lease repayments are taken from their salary before tax, which can be beneficial for high income earners.

Posted in: Business lending

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