Whether you’ve been in business for some time or you’re just starting out, you’ll know how critical it is to have the right tools for the job, regardless of what it is you do. The appropriate vehicle, plant and equipment for your business are assets that require careful consideration, ensuring they align with your overall goals and objectives. It’s also important to consider your financial strategy when it comes to your assets, understanding that each type of funding can have varied benefits and implications for your business when it comes to overheads, cash flow, tax and the potential for growth.
Asset finance or equipment finance is a method for purchasing specific assets for your business. The process is similar to a personal loan being secured by an asset - a piece of equipment or a vehicle. This type of finance can be structured in a variety of ways depending on what you’re looking to purchase and your business objectives.
There are four main types of asset finance:
- Equipment loan
An equipment loan is where you own an asset from the outset, with your loan agreement secured to that asset. The financier holds a charge over the asset until the loan is fully repaid. This is sometimes referred to as a chattel mortgage.
- Hire purchase
Hire purchase finance allows you to acquire the equipment that you need by hiring it over a fixed term, with payments tailored to meet your business needs. You own the equipment when the final payment is made.
- Finance lease
A finance lease enables you to lease equipment with no upfront deposit required with flexible terms in place to suit your cash flow requirements. The financier will own the equipment during the lease agreement.
- Novated lease
A novated lease is an arrangement between an employer, you (their employee), and your financier. Essentially, you lease a motor vehicle of your choice and your employer makes the repayments, rentals and other running costs directly from your gross salary.