Asset Finance Checklist: What Business Owners Need to Know
If you’re a business owner, you've no doubt got your hands full managing day-to-day operations. But when it comes to funding your growth, asset finance can be a real game-changer. Here's a quick checklist to make sure you've got the essentials down pat.
1. Understand What Asset Finance is
Asset finance allows you to purchase new or used equipment, including vehicles or any other serial-numbered assets. If it has a serial number, it can be financed.
ADVANTAGES OF ASSET FINANCE:
Reduce upfront costs by staggering repayments over a set term.
Free up cash flow.
Enjoy potential tax benefits.
2. Choose the Right Asset Finance Option for Your Business
Assessing different asset finance options is important. There are various types of Asset Finance facilities.
CHATTEL MORTGAGE
The funder takes a mortgage over a specific serial-numbered asset and provides funding against that asset. This is the most commonly utilised asset finance offering.
HIRE PURCHASE
The borrower takes out a fixed-period loan from a financier and that financier purchases/owns the vehicle or equipment on their behalf.
NOVATED LEASE
This is a Finance Agreement between client/employer and a financier, which allows you to purchase a new or used vehicle and make repayments from your pre-tax salary with approval from employer under a “salary
sacrifice” arrangement.
FIT-OUT FINANCE
Fit-out finance can help with the funding of assets for a fit-out, as well as the soft costs associated with the fit-out.
SALE & LEASE/HIRE BACK
This is a method of financing where assets are sold to the lender, who then enters into a lease agreement with the customer. The customer remains in possession of the assets for the term of the lease and pays a monthly rental.
3. Reduce Your Repayments with a Balloon Payment
A popular option to help free up cash flow is to consider a balloon payment. What is a balloon payment, you ask? A balloon is a lump sum payment due at the end of your loan term. For example, let's say you take out an equipment finance loan of $100,000 over 5 years with a 30% balloon. You will only be making principal and interest repayments on $70,000 with a $30,000 (30%) balloon payment due at the end of the term. When this is due you can either pay it out in full or refinance this amount over another term to further reduce repayments.
4. Consult an Asset Finance Expert
There are many factors at play when considering asset finance, such as the most suitable asset finance product for your business and the tax implications or benefits associated with any Asset Finance facilities. Make sure to consult with an accountant, lending expert or a finance professional to find out what works best for you and your business.