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.

1. Flexibility

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

End Takeaway

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.

Benefits of Short Term Business Finance

Any business looking to get off the ground must have financial backing. Getting cash immediately is a massive advantage for a business. Businesses need a boost in cash flow to capitalize on an opportunity. There may be situations when you want to keep things afloat while waiting for invoices to come in. It is ever-challenging to run a business. Therefore, you must never overlook what 2nd mortgage lenders can do for you. Maybe a short-term business loan is all that you need to be a success.

Different Varieties of Short term business funding

There are three varieties of short-term business loans to explore. They are:

Unsecured business loans are available for up to 12 months and do not need any security for application.
Invoice financing allows an outside source to pay your outstanding invoices straight away. The borrower can pay interest on the balance till the funds are available.
A business line of credit operates like a credit card. You only have to pay the interest only on the amount you will use instead of the total amount of the facility.

What are the benefits of short-term business finance?

The advantages of a business loan are endless and can be the reason behind the operation of your company. Whether you want to capture a market, launch a product, open a branch, invest in an opportunity, or keep your business afloat, a loan can help. Let us explore the reasons you might want to apply for a business loan.

1. Best bridging loans help in expanding operations

A short-term business mortgage can help you expand your business. This expansion can be of any sort, like investing in real estate or acquiring new products. You can beat the competition only when you sell your products in a bigger market. For example, if you are selling the services only in your city, expand to other areas such as state and the national markets. Reaching the international market is a large achievement. It will increase your profits and will also bring the much-desired brand name.

2. To get more working capital

Sometimes you need money to ensure enough cash to operate the business properly. Short-term business finance is an excellent way to manage daily operations and keep the business running. Usually, small organizations and start-ups use loans for this purpose. Initially, maintaining the cash flow can be a difficult task. The business cannot generate enough revenue to cover all the operational costs. Do not panic in such a situation as you are not alone. All businesses have to face this when they begin. That is why they borrow money to get their business off the ground and grow it.

3. For purchasing equipment

Equipment is pivotal according to the business that you are in. Having the right assets can pave the way to success. You can borrow money from 2nd mortgage lenders to buy the latest machinery for your business. Technology is continuously on the go. Machinery goes out of date quickly, and you need to update it to provide the best services to the customers. Investing in equipment is a good decision because it will eventually lead to more sales. For instance, if your business makes a certain number of products in one day, then upgrading machines will mean manufacturing more goods, thus leading to more sales.

4. Help your business stay afloat

Best bridging loans help a company to stay afloat. Certain businesses are seasonal that work only half a year. Sometimes you have to wait for invoices to come in from clients to proceed further. You cannot stop your business activities due to such hurdles. Go on even in crises, or else your business will fall. Small-term business loans or bridging finance can help you in such circumstances. It is a perfect way to overcome the hurdle of a financial crisis in a company.

5. To grab an opportunity

You will never know when an opportunity will knock on your doors. You should grab it at the right time to succeed. Short-term business finance ensures that you will never miss out on an opportunity due to a lack of money. Sometimes you need to make quick decisions but have no cash in hand. Borrowing money can make this happen. You can approach a lender if you are confident about the opportunity and strategy. Pay off the loan after successfully grabbing the opportunity.

6. To enhance your credit file

Your credit history will affect your credit score. Building up a good credit history is significant for any business. It will be better if you focus on it from the initial days. Some 2nd mortgage lenders look at the credit score and history before lending money. A decent score will make it easy to take a loan from traditional institutions like banks. So apart from giving a quick injection of cash, a business loan can also help you in other ways.

How to choose the right loan product for you?

There are a plethora of best bridging loan options available in the financial market. An unsecured, secured, business line of credit and invoice financing are just a few to name. When it comes to choosing one, you have to consider several things. The first thing to decide is how much amount you need. Think about how much money you can pay back without putting a strain on cash flow. Choose a lender who can tailor the products as per your specific needs. Check all the additional charges they will take and compare all the lenders.

Asking questions is a vital part of the process. Obtain answers to your queries when you meet a potential lender. It is better to have all things cleared from the very beginning. Negotiate the loan terms with the lender and lock it.

Final Verdict

Knowing so many benefits of short-term business finance, you must consider getting one today. The loan gets approved quickly, so you do not miss out on an opportunity. You can use the borrowed funds for business expansion, operational costs, launching a new product, hiring employees, and any worthwhile business purpose.

The Terms Related To Short-Term Business Finance That You Should Know

Every one of us can be in a financial crisis at some point or the other. Borrowing money may be a way out. You can borrow funds to finance your business, start a company, buy equipment, or for any other worthwhile purpose.

When you apply for a 2nd mortgage loan or any other funding for the first time, you may encounter several new words that you have never heard before. Phrases like assets, collateral, APR, working capital, and many more like these can form financial jargon. Today, we will be exploring this jargon and help you learn some loan terms that you should be aware of.

Terms related to Short-term business finance

Let us look at the terms that you should have an idea about before applying for business finance.

Collateral

Collateral is an asset that the borrower pledges as security for repayment of a loan. This asset is forfeited if the borrower does not repay the money.

Secured Loan

It is a financial product where the borrower pledges collateral. It can be any acceptable asset such as a house, car, land, or motorcycle. The lender has the full right to seize that asset in the event of a payment default. Traditional institutes like banks and some private financial institutions offer secured loans.

Unsecured Loan

Unlike a secured loan, here the borrower does not have to use any assets like a vehicle or property as collateral for getting business finance in NZ. So this financial product is for all those who do not wish to provide assets as collateral for a loan.

Short-Term loan

It is a loan with short repayment terms. The loan term varies between 3 to 18 months, depending on what the client and lender select.

Long-Term Loan

A loan that has an extended repayment period is a long-term loan. The repayment tenure can vary from 12 months up to 30 years, depending on the amount borrowed and needs of the client.

Business Credit Card

Another term you must be aware of if you are applying for 2nd mortgage loan is a business credit card. It is similar to personal credit cards. The only difference is that it is designed specifically for business or work requirements. You cannot use it for personal expenses.

Invoice Financing

Invoice financing is also known as receivables financing. In this financial term, the lender allows the borrower to use the money owed as a loan asset. This way, they can get paid for outstanding invoices right away. Since you are using your remaining invoices as collateral for the loan, it is a secured short-term business loan.

Business Microloan

A business microloan is a loan product with a small loan amount, ranging from $100 to $50,000. The repayment schedule is also shorter.

Equipment Financing

This is a business loan that aims specifically at business equipment purchases. To get what you need, simply use any existing equipment or the asset you want to purchase as collateral.

Line of Credit

A line of credit means that you have a limit of available funds and draw and re-pay funds into the loan as your needs change. You only have to make payments based on the credit that you have used.

Merchant Cash Advance

This short term business finance product is designed for retailers receiving a high payment proportion via EFTPOS or credit cards, such as cafes, shops, and restaurants.

Overdraft

An overdraft is a type of business loan. It is connected to the existing bank account of the user. This type of loan works similarly to a line of credit with a credit limit allowing you to spend more money than you have put into the account.

Asset

An asset is an item of property that a company or an individual owns. It has some significant value, for example, a car, real estate, or a piece of equipment.

Traditional Lender

Another common term in business finance in the NZ dictionary is a traditional lender. This term refers to financial institutes like banks known as financial providers traditionally.

Alternative Lender

An alternative lender is also known as a non-traditional lender. This term describes a company that aims to work outside the traditional business financing model. They utilize real-time data and technology to achieve this, making the application procedure and acquiring loans much easier.

Accounts Receivable

In relation to a the 2nd mortgage loan, accounts receivable refers to the money owed to a company by its debtors.

Accounts Payable

This refers to the money owed by a company to its creditors.

Cash Flow Statement

A cash flow statement is a financial statement measuring the cash generated or used by a company in a particular tenure.

APR stands for Annual Percentage Rate. Although it is not the same as the interest rate, APR measures the cost of a mortgage over a one-year term.

Blanket Lien

The blanket lien gives a lender the right to seize in the situation of non-payment. They can capture all the assets served as collateral by a debtor.

Fixed Interest Rate

This interest rate remains the same for the entire loan term and is known as a fixed interest rate.

Variable Interest Rate

A variable rate of interest fluctuates over time based on the market conditions.

Entity Type

It refers to your business structure like a sole trader, Pty Ltd, Limited, etc.

Loan Agreement

A loan agreement is a contract between a lender and a borrower that contains all of the loan details.

Maturity

Refers to the final payment date of the loan.

Conclusion

So, these are some of the business finance NZ terms that you must be aware of. If you are interested in any more loan terms that you are unaware of, comment below, and we will try to answer them. Thanks for reading our blog!

What Are The Advantages of Short Term Business Finance?

Business owners often face cash flow-related problems. After all, no one can predict the future of business. To tackle these issues, it is best to opt for business loans. Taking out short-term finance can assist you to deal with money problems effectively.

However, consider the length of the loan before taking out the much-needed money. It is crucial as the interest rate depends on the amount you borrow. Therefore, you can contemplate taking out short-term business finance to get quick cash at a much affordable interest rate. It will not only help you to manage all your cash flow issues, but you will get multiple advantages from it.

So, you might be wondering what those benefits are. Well, below is a list of some beneficial advantages of short-term business finance that will assist you in determining why you should apply for funding.

Get the capital quickly

While facing financial issues, you can get confused about how to get quick cash. But do not worry, as you will obtain the much-needed capital quickly. Many small business loan lenders offer you the money within just a few days. Some lenders approve the loan within 24 hours as well. On top of all, many business owners prefer to take short-term loans as it has a fast and simple application process. Hence, this is a significant benefit that helps you effectively, especially when you cannot take the chance to wait on an extended loan approval process.

Offer an affordable interest rate

One of the beneficial and the best advantages of taking out a short-term loan is you do not have to pay an enormous amount of interest. The lenders of short-term business loans in New Zealand demands less interest than other financing options. As you borrow the money for a shorter term, they would not charge a massive interest rate. So, it is beneficial as you can save a lot of money. However, several lenders demand a high-interest rate depending on your business. Still, it is a great option as you can obtain the funding very quickly.

Easy qualification for it

You will find multiple loan options, but you might not be eligible for all of them. However, if you want to apply for short-term business finance, you need to meet the criteria for it. Short-term business loans have an extremely high approval rate. You might not believe that businesses with bad credit history also get loans. It is so because this financing option requires less paperwork, and there are no fixed eligibility criteria. However, you need to gather all your account statements and financial information as the lender will review your credit score and history before approving the loan application. Hence, do not worry too much about your eligibility, apply for the loan and get the money.

Do not require collateral

It is another primary advantage of short-term loans. Most small business loan lenders do not demand any asset or collateral when approving the loan as they offer unsecured options. As the amount you are taking out is less, you will not need to secure the capital with a property. It is beneficial, especially when you have just begun your business operation. Thus, if you do not have any collateral, you can still apply for funding and get the much-needed cash to operate your business smoothly.

Offers flexibility

You will get many reputable lenders of short-term business loans in New Zealand who are willing to offer you money. The most amazing fact is that they will allow you to select a loan plan that will meet your requirements. It means they offer flexibility while taking the loan. You can negotiate the borrowing amount and the payment terms also. Some lenders also do not charge any penalty amount if you miss monthly installments. Thus, it is another reason why many business professionals opt for this funding type.

Save you from emergencies

A significant advantage of this funding type is that it allows you to stay afloat irrespective of your situation. Sometimes your business can face ups and downs, and at other times you may encounter emergencies when you cannot operate your business smoothly due to cash flow problems. In such scenarios, nothing is better than taking out a short-term loan as it effectively takes the pressure off by offering the much-needed cash injection.

A cost-effective option

When you borrow money, it is crucial to think about how you can save money for your business’s future. In this case, when you take out short-term business loans, you need to repay the money in shorter schedules. Though you may not understand its significance in the initial stage, you can save a lot of money in the long run. As discussed before, several small business loan lenders will charge higher interest rates, but still, you can save a decent amount of capital due to the shorter repayment schedules. Therefore, a short-term loan is a cost-effective financing type that not only injects some cash into your business but can allow you to save money as well.

Key Takeaways

To wrap up, we can say that by considering the above advantages, you can understand why business owners opt for short-term loans when they face financial issues. You can get the money quickly and negotiate the loan amount and payment terms when you select this financing alternative. However, you should keep your documents organized before submitting the loan application. It will help the lenders to approve the loan.

Why Are Business Owners Attracted To Asset Finance?

Asset finance is a great way for businesses to use current assets such as a real estate property or machinery and equipment of a business to secure funding. Alternatively, asset finance can be used to purchase new machinery or equipment. Any equity in these assets can be used to secure a short-term business loan. The purpose of the loan does not need to be for the purchase of equipment but can be for any business purpose such as cash flow or business expansion.

One-third of the business owners have utilized business asset finances to provide funding to their businesses. According to a survey, 29% of companies used asset funding, among which 20% have bought new plant or equipment with it. A large number of businesses used it to obtain working capital as it is a quick and easy option of funding.

What Is Asset Funding?

Examples of Asset include

Hire Purchase
Finance Lease
Equipment Lease
Short term business funding
Asset Refinance

What makes hire purchase and finance leasing different is that hire purchase allows you to have the asset at the end of the settlement. But a finance lease lets you borrow the property for a certain period.

Example of Asset Finance

To know what asset finance is practically, here is an example.

Suppose you own a manufacturing company. You might need new pieces of machinery to increase production to fulfill market demand. You require the machines immediately for your company, but you do not have enough money to buy the assets.

After examining thoroughly, you choose to hire. The advantage of this purpose is that it does not ask for a deposit, the financing can provide the full purchase price.

How Does Asset Funding Work?

Asset finance, can also be known as bridging finance, they operate quite differently than other finances. Bridging finance requires equity in real estate asset to secure the funding.

Bridging finance can allow you to borrow up to 75% of the value of the property including your current mortgage.

Increasing Popularity

Recently, as business owners have realized the advantages of asset financing, it is becoming popular with time. Their popularity is because they are a quick and easy option to secure funding for your business.

Advantages of Hire Purchase

There are several benefits of hire purchase-including

Saves cash flow without using it to buy new assets in an emergency.
Your business can procure up to date machinery assets.
The interest rate is remarkably lower than the interest rates of bank loans or overdrafts.
Set monthly repayments to assist with managing cash flow

Advantages of Finance Lease

Finance leases provide many advantages to businesses such as

No need to use cash flow to purchase new assets immediately.
Depreciation benefits with tax
Let you forecast the exact revenue flow as the monthly payments options are fixed.
Tax benefits as it will get referred to as a trading expense.

Advantages of Asset Refinance

Allows obtaining working capital quickly.
The finance amount of asset refinance can be utilized to invest in business growth.
Let you predict proper cash flow because of the fixed monthly payback system.
Save your business from an emergency lack of cash flow situation.

Who Can Obtain Asset Finance?

Asset finances are primarily for every sort of business which includes SMEs. It allows acquiring a high-value item and provides support to the business’s development. To obtain asset finance for a business you need to have a registered NZBN number

Period of Asset Finance

Business owners can obtain asset financing from one to seven years. In some cases, if the asset is of higher value, then the time can get extended. The asset financing lender gives a specific period to pay the asset price back, including the interest amount to the business owner.

Another significant factor determining the period for which the lender will provide the financing is how long you will use the asset and how fast you have to pay the money back to the lender. The finance borrower must provide some proof to ensure they can make the payments easily.

Bottom Line

Asset finances are the short-term business finances that every company may require at some point in time. It assists your business in reaching the peak of success. So if your business needs assets to grow the manufacturing rate, asset finances are the superior to consider.

What Are The Different Types of Asset Finance And Their Benefits Over Other Credit Facilities?

Most small business owners at some point in time will fall short of cash during the running of their business. Due to this, a business owner may need to find funding solutions as cash and capital are the lifelines of running a business, a sufficient cash flow is necessary. When the business owner fails to have sufficient cash flow to continue operations, they can seek alternative funding to assist with the operation of the business. One solutions is to seek out asset finance.

Asset Funding allows the business owners to boost cashflow or assist with expansion or purchase of much needed equipment. The reputable lenders of business finance such as Homesec Business Finance in NZ approve the application against security that the owner provides. A quick and easy process of accessing the cash for the business is to leverage the business assets or real estate assets to provide a cash injection. Some business owners still do not understand the significance of asset funding, which provide a quick and easy solution for acquiring the funds they require.

Different Varieties of Asset Finance

The different types of asset funding available for short-term business finance are as follows.

Invoice Factoring

Invoice factoring is one of the popular types of asset funding for cash against the outstanding invoices of money that is owed to a business. The process includes releasing cash against the debt before the invoice is due. The advantage of this type of asset funding is that capital is readily available to business owners. The provider will collect outstanding invoice directly from the customer. The factoring service company will generally release from 60 to 90% of the invoice depending on who the supplier is.

Finance Lease

Sometimes business owners need to purchase equipment or assets for their business growth. A finance lease will help the borrower to retain the cash flow they could use for making the purchase. During the repayment term, the borrower pays back the capital with the interest thus easing further pressure on the cash flow.

Bridging Loan

Bridging finance is defined as short-term business finance that helps the borrower to overcome various problems when there is shortfall in cash flow. Bridging business loans provide access to cash quickly using available equity in real estate, the loan is repaid within a short period of time, either from increased cash flow or sale of an asset.

Pre-shipment Finance

Exporters require the necessary funds for supporting the advancement of the massive orders of export. This funding will ease the cash flow pressure for the short term, especially applicable for the massive export orders, requiring more time for completing the manufacturing.

Process of Application for Asset Funding

Homesec Business Finance has an easy online application process where you only need to provide minimal documents to have the loan assessed, these include a copy of a rates notice, current mortgage statement and ID. If there is sufficient equity in the real estate asset then you are more than likely going to be approved.

Other lenders also ask for a detailed business plan on how the new asset or property will assist the owner in enhancing the profit or efficiency of the company. Full financial statements are also required by some lenders but not at Homesec Business Finance.

Advantages of Asset Finance

Asset finance is especially beneficial to start up businesses as they do not have the financial trading records to support a standard business loan. Another advantage of asset funding is that the business owners do not have utilise their own cash resources, instead, they can implement those funds for the stock, overheads, payroll, and various operational costs. By obtaining asset finance for the business it can assit with expansion and see the business grow and succeed.

Final Thoughts

Unlike traditional loans and overdrafts, asset funding comes with easier terms and conditions. The applications for asset funds also get processed at a faster pace in comparison to other loan types. So, apply for one and take advantage of the benefits of this loan.

What is Asset Finance and how will it help to grow your Business?