Many businesses are looking for ways to improve their cash flow and to simplify their accounting.
Asset finance can be an efficient way to manage your cash flow to fund vehicles, machinery and other equipment. Preserving your capital through asset financing can provide you with the money and the hardware needed to expand your business. You can also minimize the risk of having obsolete equipment along with various tax benefits.
When considering asset finance options, questions you need to ask yourself are:
- how much capital do I need to grow my business?
- what will be the impact on tax through asset financing?
- how long will I need the equipment and will I need to upgrade it?
- is technology rapidly changing in my industry?
- do I want to ‘finance to own’ or ‘finance to return’ my asset?
Generally speaking, main asset finance options for businesses include Commercial Hire Purchases, Financial and Operating Leases and Chattel Mortgages. As each one of these is suitable to different commercial requirements, so when considering your options, it is better to speak to your accountant or tax advisor.
Introduction to these main types of asset financing is as follows:
Commercial Hire Purchase
With this type of finance, you hire and use the asset until the last payment. When you make the final installment, title of the asset transfers to you. Your periodical payment will be based on the asset price, the loan term, initial deposit and a final residual or balloon payment.
In Chattel Mortgages, you own the asset right away and your loan is secured by the asset. You can choose your loan repayments based on the term, which is generally up to five years.
With a Finance Lease, the lender owns the asset however you bear the risk of asset disposal at the end of lease. Finance lease can be useful to those businesses that are looking for new vehicles or equipments without putting up a large amount of capital. You can select the option of lease payments in advance or in arrears and up to five years term. A residual value is required to be paid in line with the asset’s use at the end of the lease or its useful life.
Operating Lease allows you to use an asset but does not convey the rights of ownership. It represents an off-balance sheet mode of financing wherein repayments under the lease can sometimes be considered as operating costs and will not appear as a liability on your balance sheet.
Regular and fixed lease payments makes reporting of the business expenses easier and helps to streamline your business cash flows. Also, you don’t need to put aside a large amounts of capital for buying assets.
Based on your requirements, the equipment you can finance with regular fixed payments includes:
- commercial vehicles
- plant and machinery
- earthmoving and construction equipments
- medical equipments
Asset finance is usually set over a period of one to seven years. There are a lot of very competitive rates for asset finance available, some even as low as home loan rates.
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If you are searching for a suitable asset finance for your business, please contact us for a consultation. Contact us