What is Asset Finance and how will it help to grow your Business?
The financial market of New Zealand has many products to choose from. Each of these products has unique features to fit the varied needs of the borrowers. Business asset finance is a popular loan type among business owners.
Companies need new equipment time and again to grow & sustain in the rapidly evolving market. Asset financing can be the ideal solution in this case. It is better to gain adequate knowledge before you decide to take out any loan type. Continue reading for some additional information.
What is Asset Finance?
Asset financing is short-term business finance that uses a company’s assets (Machinery, Equipment, invoices, real estate assets) to borrow money or obtain credit. Asset Finance gives businesses access to assets and equipment without depleting the funds needed to pay employees and track cash flow.
You can use Asset finance to purchase or lease a vehicle, machine, or office equipment. Asset Financing Loans include construction equipment, imported machinery, office furniture, and coffee machines. No matter how unique or unusual, if the asset you have in mind is central to your business, you can apply for asset financing.
What are the types of asset financing?
There is a wide range of options in leasing and installment purchases, with some options better suited to the asset you are looking for than others.
1. Contract hire
It is also known as vehicle inventory financing, as it can finance company vehicles only. The business lender purchases the car needed for the business, and the borrower repays it in installments over the agreed lease term. Service costs and maintenance are the borrower’s responsibility, as is the disposal of the vehicle at the end of the lease.
2. Operating Lease
This is a term lease that does not pay the total cost of an asset, often a special-purpose machine, because it is leased for a period of less than its useful economic life.
Often cheaper than equipment leasing because the company only pays an estimated value for the item over the agreed limited lease period. The leasing company will be responsible for maintenance and recover the asset at the contract end.
3. Installment Purchase
It allows you to purchase an asset over an agreed-upon period by dividing the cost. The item appears on your balance sheet, and insurance and maintenance are your responsibility. At the end of the term, the asset will be yours.
4. Equipment Leasing
In this type of asset financing, the business lender purchases the asset your company needs and rents it to you. Providers bear the cost of maintenance and repairs. You only must pay a fraction of the total value upfront. It is ideal if you want a high-quality, expensive manufacturing machine but need more funds to buy it outright.
Generally, you must pay the first month’s rent in advance while the rest is spread over the rental period. At the term end, you can continue leasing, purchasing, or simply returning the device. It is especially popular with companies that need help to make medium-term financial forecasts because they need to respond to rapid change.
5. Finance Leasing
Also known as capital leases, long-term leases are designed for the useful life of an asset. Get the most out of your facility, pay it back over time, and be responsible for maintenance and insurance.
Payments generally continue until the lender recovers at least 90% of the cost of the property value. Lenders can provide a percentage of the value after the item is sold, but your company does not have the option to purchase the asset directly.
6. Asset refinancing
This option is different as you secure a loan against an asset your business already owns (such as a vehicle, equipment, or commercial building) to free up the cash your business needs. When you refinance an asset, the lender makes an offer based on the equity you hold in the asset. Unlike short-term business finance, it means you can free up cash from your partially-owned physical assets.
The refinanced asset must be physically removable to be considered collateral for the loan. The amount you can borrow is dependent on the asset value that releases the cash. If refinancing is agreed upon, the lender will pay the provider in installments over the agreed term, including interest on the loan.
How can Business Asset Finance help my business grow?
Let us now check out how a business asset loan can assist you in growing your business.
With various financing options available, asset financing offers business owners a flexible solution to purchase equipment critical to their growth.
2. Fast and easy process
The process of buying assets with Asset Finance is surprisingly easy. Just identify the assets you wish to purchase and the supplier you want to purchase from and provide supporting documentation such as past business accounts (this varies by the funder). Then approach a panel of lenders to find the best deal for yourself. The process is surprisingly quick, with funds disbursed within days.
3. Cash flow
Purchasing and prepaying for expensive equipment is impractical and can hurt a company’s cash flow. By funding equipment through asset business lenders, businesses can spread costs over a while and free up cash flow for other uses that support business growth.
4. Tax Benefits
Payments for certain asset financing agreements are tax-deductible business expenses and are available for investments. If you purchase equipment, machinery, or vehicles (known as plant and machinery), you can deduct some or all of the item’s value from your profit before paying the taxes.
You can claim a capital deduction if your equipment is a:
- Direct purchase
- Purchase by installment purchase
- Offer under a long-term finance lease
Any business, regardless of size, can benefit from business asset finance, small companies looking for growth and access to the facilities they need to do so. Asset financing is available to limited liability companies, public companies, and sole proprietorships to help spread the cost of the assets a business needs.