To offer the best service to your customers and run an efficient operation, you need to be working with the right asset. But purchasing new or even second-hand assets can put a severe dent in your working capital.
That’s why many Australian businesses use finance to cover the costs of new assets and maintain liquidity. With traditional lenders becoming more risk-averse and unwilling to provide funding, Asset Finance is an increasingly popular solution for Australian businesses.
In this guide, we’re going to cover everything you need to know about Asset Finance to determine if it’s a good solution for your business.
What is Asset Finance?
Asset Finance is a financing solution that enables businesses to access the funding they need to purchase asset. Funding is usually provided in a fixed-term loan repaid in regular instalments over 24 to 60 months.
The funding allows the business to spread the cost of purchasing asset over a more extended period and use the additional revenue the asset generates to pay for the finance cost. Asset Finance can be used to fund:
- Business asset
In contrast to a traditional loan, Asset Finance is much more flexible and accessible. Because the asset’s value acts as collateral for the funding, you don’t need to put your home or property at risk to secure financing. The funding facility can sit alongside your existing finance arrangements and can be combined with other financial products.
How Does Asset Finance Work?
Using Asset Finance, you can fund your business’s growth and development even if you don’t have readily accessible capital. Asset Finance allows you to upgrade and replace old asset without straining your finances.
For example, let’s say that you run a distribution and logistics business. To grow and take on new clients, you need to purchase a new forklift. The new forklift will cost $20,000 to $45,000, and the battery and charger will cost an additional $2,000 to $5,000. This means you need to raise up to $50,000 to purchase the asset you need.
With Asset Finance, you can fund up to 100% of the forklift value and spread the cost over a period of 2 to 5 years. With the new forklift, you can expand your capacity and take on new clients to raise additional revenue to pay for the financing and grow your business.
At the end of the financing period, you will own the forklift or have the option to purchase it for a nominal fee depending on the terms of the Asset Finance facility.
Business Asset Financing
Business asset includes all of the tools, technology, and vehicles you need to run your business, including:
- Yellow Goods
- Excavators and Construction Equipment
- Other Equipment & Machinery
Around 30% of SMEs feel they have missed out on opportunities due to a lack of funding access. With Asset Finance, you can capitalise on opportunities and fuel your business’s growth by funding the purchase of the asset you need. It can allow you to increase productivity and revenue while maintaining a consistent positive cash flow.
Commercial Asset Financing
To offer professional and scalable services and products to your customers, you need commercial asset. In simple terms, commercial asset is machinery, tools, and apparatus designed for a commercial enterprise. For example, if you run a cake shop, you need commercial ovens, fridges, etc.
Commercial asset is built to withstand the intensive daily usage of commercial operation. More heavy-duty and robust than asset developed for the consumer market, commercial asset is also more expensive.
A fridge designed for home use ranges from $500 to $2,000, while a commercial display fridge can cost up to $20,000. The cost of replacing or purchasing new commercial asset can make a significant impact on cash flow.
Asset Finance allows you to fund the purchase of commercial asset. A funding facility can be put in place for a single piece of asset or to fund multiple upgrades.
Small Business Asset Financing
Asset Finance is a funding solution designed for the needs of small businesses. In Australia, small businesses account for 98.4% of total businesses and contribute $418 billion to GDP – the equivalent to 32% of Australia’s economy.
Despite being a hugely important contributor to the economy and local communities, small businesses have increasingly found it difficult to access funding. With banks and traditional lenders becoming more risk-averse, innovative funding solutions like Asset Finance have helped small businesses get the funding they need.
Asset Finance can be used to upgrade or replace existing asset with more efficient models. If you have a long trading history, you will find it easier to qualify and access more favourable credit terms.
New Business Asset Financing
Start-ups and new businesses typically find it hard to qualify for bank loans and other traditional funding solutions. Asset Finance is much more accessible, even for businesses without a long track record or credit history.
You can fund the purchase of the asset and machinery needed to make your new venture a success. Because the asset acts as collateral for the funding facility, you don’t need to provide a large deposit or use your home as security.
Rather than tying up capital in an expensive asset, you can invest in marketing, staff, and other business areas that will help you increase revenue and profit.
How Long Can You Finance an Asset?
The length of an Asset Finance funding facility depends on the value of the asset you want to buy and the amount you can afford to repay each month. Funding terms range from 24 to 60 months.
Some businesses choose to make a lower monthly repayment to better manage working capital, with a balloon payment due at the end of the agreed contractual term.
We offer a range of flexible finance solutions to help businesses access the capital they need to grow.