Are you facing a shortage of capital for small business finance to acquire equipment? Maybe you should explore asset financing options to bolster your operations.
Asset Financing, this umbrella term encompasses various loan structures that enable businesses to purchase equipment, such as machinery or vehicles, to enhance their operations. There are several loans designed to suit different situations.
Types of Asset Financing Options for Small Business Finance
Chattel mortgage or equipment loan
One popular asset financing option is a chattel mortgage. A chattel mortgage allows you to borrow money specifically to purchase an asset. In this arrangement, your business owns the asset, but the lender has the asset as security until the repayments are complete.
This not only provides the business with the necessary capital but also offers automatic security for the loan.
Commercial hire purchase
Small businesses can also opt for a commercial hire purchase agreement. Under this agreement, the lender retains ownership of the equipment, and the business pays hire fees to use it as a part of their small business finance strategy.
These hire fees act as loan repayments, and at the end of the agreed term, the business takes ownership of the asset, spreading its cost overtime.
Finance lease
A finance lease is another viable option for small business finance. Similar to a commercial hire purchase, a finance lease means the lender owns the equipment, and the business pays hire fees to use it. However, with a finance lease, the business has the flexibility to choose whether to purchase the asset at the end of the set term.
This spreads out the cost of the asset and also provides flexibility.
Operating lease
An operating lease operates on the same principle: the lender owns the equipment, and the business pays hire fees to use it.
However, unlike the previous options, an operating lease does not offer the option to purchase the asset. The leasing costs are deemed operational rather than a liability on your balance sheet.
Novated lease
Small businesses can consider a novated lease, a unique small business finance arrangement involving the business, an employee, and a lender. The business borrows money from the lender for a motor vehicle, which the employee then leases from the business. The business retains ownership to the vehicle until the employee repays the loan.
The repayments come from the employee’s gross salary, so there are some tax benefits for the employee.
Seeking Professional Advice for Small Business Finance Asset Options
To make informed decisions regarding asset financing, it is advisable for small businesses to ask help from financial professionals. Brokers specializing in small business finance and asset finance can help businesses explore options based on their unique circumstances and financial goals.
In conclusion, asset financing offers potential solutions for small businesses facing a shortage of capital to acquire necessary equipment.
By considering options such as chattel mortgages, commercial hire purchase agreements, finance leases, operating leases, and novated leases, businesses can access the required capital while spreading out costs and enjoying increased flexibility.
Our guest writer, Domenic Corigliano, organised the article at Mortgage Link.
If you have any questions or concerns, the Kreston Stanley Williamson team is here to assist you. Please don’t hesitate to reach out to us for guidance and discussion.
*Correct as of September 2016
*Disclaimer – this article has been produced by Kreston Stanley Williamson as a service to its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.
