CHOOSING THE RIGHT TYPE OF ASSET FINANCE
Choosing the right type of asset finance will ultimately help save you time and money, and these are certainly resources much better spent investing in the growth of your business. You need to stay up to date on the latest equipment, you need to ensure that you are poised to competitively perform in a rapidly expanding arena. Asset financing allows you to accomplish just this. Reduce the risk of owning obsolete equipment, position your business for maximum growth, and also take advantage of the tax benefits involved with this particular type of financing.
We consider all manner of assets. From vehicles for commercial and personal use to heavy machinery and shop fit-outs, FFB specializes in financing a wide array of equipment and those items that your company requires to succeed. Even on a smaller scale, we will work with you to accommodate your business’s needs, to include financing the purchase of furniture and technology for use in offices, medical institutions, warehouses or factories.
When considering asset finance options, you need to ask yourself:
- How much capital do I need to grow my business?
- What are the tax outcomes of 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, asset finance options are broken into five different categories: Commercial Hire Purchases / Financial and Operating Leases / Chattel Mortgages / Novated Leases / Technology Rentals. As each is suited to different commercial circumstances and purposes, you will want to talk to your accountant or tax advisor when deciding which option is the right one for you.
COMMERCIAL HIRE PURCHASE
With this type of finance, you hire and use the asset until the last payment. Upon paying the final installment, title of that asset will immediately transfer to you. Payment options are extremely flexible and can subsequently be tailored to suit your business’s needs and circumstances. You may adjust the loan period, deposit amount, along with the large final balloon payment. In light of your particular cash flow situation, structured payments can be established in accordance with your financial position.
Chattel Mortgages are a popular finance solution where you own the asset right from the outset, and your loan agreement is in turn secured by this asset. Flexibility in loan payments enables you to choose the term— typically up to five years. Other payment options that remain flexible include the deposit amount as well as the larger final installment. You may also be able to structure payments so as to free up cash flow during those times of year you need it most.
With a Finance Lease, the financier owns the asset, however, you bear the risk of disposal (of the asset) at the end of lease. This type of lease most often benefits those businesses that need the latest vehicles or equipment and yet do not wish to tie up a large amount of capital. You can choose lease payments in advance or arrears with terms of up to five years. A residual value is required in line with the asset’s use and the Australian Taxation Office’s guidelines.
If you want to include a vehicle in your salary package, a Novated Lease can help. The financier owns the asset, while you and your employer sign a novation agreement to share the responsibilities of this loan. With typical loan terms ranging from 12 months to 5 years, monthly lease payments, as well as a final residual payment are generally based upon your circumstances and also guidelines set by the Australian Taxation Office. If you are interested in a Novated Lease, talk to your HR department for more options.
Operating Leases are relatively flexible and can often be used to fund a number of different assets. Payments towards this type of finance can sometimes be considered as operating costs and therefore will not appear as a liability on your balance sheet.
YOU CAN REDUCE THE RISK OF OWNING OBSOLETE EQUIPMENT.
FLEET OPERATING LEASE
With this type of asset finance program, the financier owns the vehicle and the client returns it at the end of a term—this term generally ranges from 12 months to 5 years. When leasing a vehicle, the fixed monthly payments typically cover registration, insurance, tires and scheduled servicing and maintenance. Beneficial for a small business, a Fleet Operating Lease often helps free up valuable time, cash and resources.
TECHNOLOGY RENTALS / LEASE
Undoubtedly, technology can change quite rapidly, and the exorbitant costs associated with staying up to date as far as purchasing the latest equipment and software can have a huge impact on your cash flow. Renting rather than owning various pieces of equipment can certainly help reduce the risk of possessing obsolete items, while still enabling you to preserve cash in order to grow your business.
Similar to a Fleet Lease, the financier owns the equipment and the client returns it at the end of the term–usually within 3 years. Flexible, the terms and payment frequency of these types of rental agreements can often be adjusted to meet a company’s budget and unique business requirements.
THERE ARE A WIDE RANGE OF COMMERCIAL LOANS AND LEASES AVAILABLE IN THE MARKET. NOT ALL OF THEM ARE RIGHT FOR YOUR BUSINESS, NOR ARE YOU NECESSARILY ELIGIBLE FOR ALL OF THESE PROGRAMS. THAT IS WHY IT IS SO IMPORTANT THAT YOU TALK TO US TO SEE WHICH SOLUTION IS THE BEST ONE FOR YOU.