While there are numerous forms available, asset finance is for businesses that require expensive equipment such as IT systems, machinery, and vehicles that don’t have the funds available to make the purchases. For businesses that are looking to grow, asset finance is a popular form of finance.
To receive the money needed to buy equipment outright, one option is for a business to take out a commercial loan. When high-value equipment is required, many small business owners turn to alternative forms of asset finance in addition to the traditional bank loan options.
Among the different forms of asset finance available are high purchase, finance lease, operating lease, novated lease, chattel mortgage, and technology rentals, which we will explore in more detail later.
Yes. Asset finance is a loan taken out by a business that wants to buy high-value assets like office equipment, company cars, and machinery. Asset finance is typically used by businesses that are hoping to grow but do not yet have the money to purchase vital assets up front or would prefer to spread the costs of the vital assets over time to better carry the financial burden.
The six types of asset finance are as follows:
Hire purchase. Commercial hire purchases allow businesses to hire assets and then make payments until the asset is paid off in full. The asset’s title is then transferred to the business’s name, after the final instalment has been paid. If you are looking to own an asset long term, this is an ideal option.
This option also allows for some flexibility, which can allow you to tailor your financing to your cashflow situation. It could allow you, for instance, to use a balloon payment, arrange for a larger final balloon payment, request a smaller or larger deposit upfront, or change the loan period.
Finance lease. A finance lease is useful to a business that needs the newest equipment or vehicles but is not interested in tying up most of its capital. Lenders own the assets with this type of asset financing, but the borrower bears the risk of disposal after the lease ends. Finance leases, like commercial hire purchases, have some flexibility in the terms and lease payments.
Chattel mortgage. Chattel mortgages allow you to own the asset from the get-go—which is the main reason it is such a popular option. With your loan secured by the asset itself, you can select the term and tailor your loan arrangements. Typically, the term is up to five years. It also allows you to vary other terms, meaning you have the option to customize by paying a higher final instalment or a higher deposit.
Novated lease. If you, as a business owner, want to include a vehicle with your salary package, a novated lease is the best asset finance option available to you. Both employer and employee sign a novation agreement in this financing option, which makes you both responsible for the loan. If you are an employee who wants to use a novated lease, you should work with your human resources department. The loan term for novated leases typically ranges from one to five years.
Operating lease. Your company never owns the vehicle when you get a fleet operating lease; instead, the financier owns it for the entire term (1-5 years), and you return the vehicle once the term comes to a close. Small businesses are usually the ideal candidates for fleet operating leases, with the fees for insurance, tires, registration, and maintenance included, which makes life easier for you and your finances.
Technology rentals. Technology rentals are appealing and financially sound for many smaller companies that find it difficult to pay upfront for the newest equipment. You can think of technology rentals like fleet operating leases, wherein you never own the equipment, and you return it at the end of a specified term, typically three years. The most attractive reason to opt for a technology rental is that your business will never be forced to own obsolete technology.
An asset finance broker can help you get asset finance from a lender, but typically does not work for a specific financial provider. Since they have niche expertise, asset finance brokers negotiate the best deal possible for your circumstances. Some asset finance brokers receive a commission from providers when a settlement is achieved, while others charge the client directly.
The advantages of asset finance include reducing upfront costs, opening up an additional line of credit, eliminating unforeseen costs, freeing up capital, avoiding depreciation, and improving cashflow. Asset finance is also a quicker option, since getting bank-term loans can take up a lot of time.
Disadvantages of asset finance
A disadvantage of asset finance is that it is not a short-term solution and you do not own the assets.
