There are countless benefits of asset finance for business use. Asset finance allows borrowers and businesses to access an asset – such as a new car or the latest piece of machinery – sooner.
At Inovayt, our expert team has years of experience educating our clients on the benefits of asset finance. If you’re ready to expand your business with asset finance, read on for more information.
Asset finance benefits for businesses
In today’s competitive business landscape, staying ahead of your peers requires a strategic approach that balances innovation, growth, and financial stability. As a business owner, you know that managing cash flow and accessing capital is essential for success. Asset finance can be a game-changing financial solution to help you overcome these challenges and accelerate your growth.
Here are some of the key benefits of asset finance in business.
Maintaining your cash flow
One of the primary advantages of asset finance is its ability to maintain your business’s cash flow. Instead of making large upfront payments for essential assets, such as equipment, machinery, or vehicles, asset finance enables you to spread the cost over a period of time. By opting for regular payments, you can preserve your cash reserves and allocate funds to other critical areas of your business, such as marketing, research and development, or expanding your team.
Minimising upfront costs
Starting or expanding a business often requires substantial investments. Asset finance helps you overcome the hurdle of high upfront costs by offering flexible payment options. Rather than depleting your working capital to acquire necessary assets, you can enter into a finance agreement that suits your cash flow needs. This allows you to access the required equipment and resources without straining your finances.
With asset finance, the collateral for your loan comes from the asset being funded, meaning you won’t need to dig into your cash reserves to present a significant deposit.
By choosing asset finance, you gain the freedom to allocate your capital strategically. Instead of tying up your funds in depreciating assets, you can invest in revenue-generating activities, such as marketing campaigns or new product development. This flexibility empowers you to seize growth opportunities and make intelligent financial decisions that will positively impact your business’s goals.
Asset finance offers attractive tax benefits that can help reduce your business’s overall tax liability. Under Australian tax laws, companies can claim tax deductions for the depreciation of assets acquired through finance arrangements. By deducting the depreciation expense over the asset’s useful life, you can potentially lower your taxable income, resulting in substantial savings. It’s crucial to consult with a tax professional or accountant to understand the specific tax advantages applicable to your business.
Instant asset write-off
Another appealing advantage of asset finance is the instant asset write-off provision. The Australian government has introduced great initiatives that allow eligible businesses to claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used or installed ready for use. This instant asset write-off can be used for multiple assets (including new and second-hand items) so long as they cost less than the threshold. Currently, the threshold is set at $150,000. This means you can invest in assets vital to your business’s growth, write off the cost in the year of purchase, and potentially increase your cash flow even further.
No additional collateral required
Securing traditional loans often involves offering collateral, such as property or other valuable assets, to mitigate the lender’s risk. With asset finance, the asset itself serves as collateral, eliminating the need for additional security. This makes asset finance an attractive option for businesses that may not have substantial assets or those who prefer not to use their property as security. By leveraging the value of the financed asset, you can access the funds you need while minimising the complexity and potential risks associated with collateral requirements.
Types of asset finance
When it comes to asset finance, there are a range of options available for businesses. These include:
The tools, equipment and machinery your business uses are some of its most important assets. This can be anything from a tradie’s tools, office computers, work vehicles and equipment, or even specialised machinery. There are two main types of equipment leasing – operating and financing leases.
Under a finance lease, the asset provider purchases an asset on behalf of your business with the agreement that you will lease that asset over a period of time. The leasing company is responsible for all expenses like maintenance, repairs and insurance during the lease period. The original purchaser can then sell the asset at the end of the lease. Your business will not have the option to gain ownership after the leasing period has ended.
A business’s operation and profitability can often depend on the performance of its equipment, so if the opportunity is there, purchasing new equipment can increase both efficiency and profitability.
Under a hire purchase agreement, businesses lease an asset from a provider who has purchased the asset and agreed to rent it to your business. While the asset is being leased, the original purchasing business is responsible for all repairs, maintenance and insurance. Hire purchase is a way to purchase assets by paying instalments over time. At the end of the lease period, provided all payments have been made, your business will then take ownership of this asset.
With a chattel mortgage, the purchased asset is the collateral for a loan. Unlike a mortgage on real property, a chattel mortgage is for movable property, such as a vehicle or factory machinery.
With a chattel mortgage, the lender can take the asset and liquidate it if the borrower is not able to make repayments.
It’s time to talk to an Inovayt asset finance broker about the benefits of asset finance
There are some significant benefits for businesses that utilise asset finance. Not only can asset finance help to increase cash flow, but it also comes with some useful tax incentives.
To find out which asset finance option would work best for your business, get in touch with one of our expert asset finance brokers today.