Why asset finance makes good business sense

Why asset finance makes good business sense

 

When you need new equipment to help your business grow, is it better to buy it outright or finance it? Here are some things to consider when thinking about asset finance.  

Whether you’re a tradie and need to buy a new ute, or a grocer and need a new forklift, these tools of trade are vital to the growth and success of your business. They also account for a significant capital outlay, if purchasing outright. So you might want to consider asset financing as an option.

Secured asset finance can be used to acquire assets such as motor vehicles, equipment, machinery and even renewable energy solutions. Finance is secured by the asset, this usually enables the lender to provide more favourable interest rates and finance terms when compared to unsecured forms of financing.

You can apply for asset finance, no matter how small your business is. It can be a smart way to get what you need or keep your business moving, without tying up precious capital.

“If I own a delivery company and I need another van, financing can make sense because I don't need to use my available capital to buy it outright,” says Lucas Tarnawski, Head of Product, Asset Finance at Pepper Money.
“I could be using that capital for things like employing people or advertising, rather than sinking it into a depreciating asset.”

Not only can asset finance reduce capital outlay, but spreading the cost of the asset over time through financing could place less financial stress on your business as finance terms can work in line with the projected cash flow of your business and what is affordable.

“By choosing asset finance, you could be giving yourself the ability to generate income to pay for the asset over the agreed finance term.”

 

  Counting the business benefits

Even if you can afford to purchase equipment outright, asset finance can support sound business management practices.

Financing can help with spreading the cost of an asset over manageable monthly payments in line with projected monthly income.

What are the benefits of refinancing?

“For a lot of businesses, asset finance may make more sense, because they know that they're getting regular income, and then they can match the associated expenses against it. They also know that their customers aren’t going to pay them six to twelve months in advance, which might be the payback period for an asset if they purchase it outright,” Lucas says.

Another benefit of asset finance can be the ability for the loan term to be aligned to the life of the asset.

“Lifecycle management is all about looking at the assets that you're investing in to generate income for your business as having a finite life and being able to plan around that,” Lucas says.

“By putting a plan in place about how long you want to be using that asset for and realising there’s going to be some sort of value at the end of term, you can opt to increase the balloon payment at the end, reduce your monthly outgoings and boost cash flow during the term.”

Asset financing can also offer certain tax benefits for small business owners, which are always helpful. This includes temporary full expensing, which is a current federal government tax initiative aimed at supporting businesses and encouraging investment. An eligible business can claim an immediate deduction for the business portion of the cost of an asset in the year it is first used or installed ready for use for a taxable purpose.

This scheme has been extended to June 30, 2022. Be sure to check the ATO website and speak to your accountant to see if you’re eligible.

   What can I get finance for?

Pepper Money offers finance on a range of business assets, including motor vehicles and electric vehicles, motorcycles, construction and earthmoving equipment, light commercial vehicles, computers and office equipment, materials handling and renewable energy solutions to name a few. Depending on the terms you’re looking for, there are a range of commercial loan and financial lease options available.

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“Like any decision, it’s important to consider your goals and what outcomes you’re trying to achieve from acquiring the asset” Lucas says.

“Things like how long you actually want to hold that asset for, would you consider upgrading again soon, or is your priority to have a lower payment over the loan term? Talk to your accountant and then your broker and they’ll be able to discuss solutions matched to your objectives.”

If you're looking to invest in your business – whether it’s a commercial vehicle, heavy machinery or office equipment – then get in touch with a Pepper Money accredited broker and see what loan options could be available.

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