Asset finance is a useful way, especially for small businesses, to get the equipment and assets they need without having to pay a lot of money upfront. It uses the asset itself as a guarantee for the money borrowed. This allows companies to keep their cash flow steady while still getting the tools they need to grow.
What’s the core benefit of asset finance? It’s simple. It enables you to maintain your cash flow while making use of valuable assets. Whether you go through chattel mortgage, equipment leasing, or any other asset financing solutions, the goal is always the same. That is supporting the expansion of your small business without taxing your resources.
Step-by-Step Guide to the Asset Finance Process
Below are the step-by-step process in securing an asset finance:
- Assessment: First off, figure out what assets your business needs and how much they’ll cost.
- Application: Next, gather and submit the necessary financial documents to your chosen provider.
- Credit evaluation: The finance company will take a look at your business’s creditworthiness.
- Asset valuation: Professionals will assess the actual value of the asset you want to finance.
- Agreement: Once you’re approved, you’ll get the terms that detail the payment schedule and rates.
- Asset acquisition: The finance company will buy the asset for you.
- Utilisation: Your business can start using the asset while you make regular payments.
- Ownership transfer: Depending on the type of finance—such as a chattel mortgage or lease—you may own the asset at the end of the term or simply return it.
During this process, lenders evaluate the loan-to-value ratio to gauge the level of risk. This ratio compares the amount of the loan to the market value of the asset. For most business assets, it typically falls between 60% and 80%.
Having fully equipped themselves on how asset finance works, business owners can choose and make smart decisions that will best support their business growth plans while preserving a healthy cash flow.
Comparing Lease Financing, Chattel Mortgage & Asset-Based Lending
Below are the different types of asset financing.
| Financing Type | Ownership | End of Term Options | Best For |
| Chattel Mortgage | Leasing company owns until final payment | Purchase option available | Businesses seeking eventual ownership |
| Asset-Based Lending | Business maintains ownership | Continued credit access if assets maintained | Companies with existing valuable assets |
| Operational Leasing | Leasing company retains ownership | Return asset or extend lease | Businesses needing temporary equipment |
When deciding between these options, consider:
- Your cash flow requirements
- Whether asset ownership matters to your business
- The tax implications of each option
- Your company’s growth timeline
- The expected lifespan of the asset
Determine your unique business situation, financial objectives, and the strategic role of the asset in your business operation.
Key Benefits and Risks in Asset Finance
Asset finance is a great way for businesses to acquire the equipment they need without having to pay up the entire cost upfront. It’s a clever strategy for managing cash flow while still pushing your business forward. However, like any financial tool, it has its perks and pitfalls that every business owner should be aware of.
With asset finance, you can extend payments over time, allowing you to utilise essential equipment while paying for it gradually. This method can truly transform the way small businesses expand without putting a strain on their savings.
Major Benefits of Asset Finance for Business
Improved cash flow is arguably the biggest perk of asset finance. Instead of spending a large amount all at once, you can keep your cash flow healthy for other business needs. This extra breathing room can be a game-changer, especially for companies that are on the rise.
Tax benefits may apply, such as claiming lease payments as operating expenses. It’s important to speak with your accountant or tax professional to understand how this applies to your business.
Operational flexibility is another major advantage. With choices like chattel mortgage and equipment finance, you can upgrade your gear more easily as technology evolves. This keeps you updated without the hassle of being stuck with outdated equipment.
A great example comes from a manufacturing company that tapped into asset-based lending to buy new production machinery. They boosted their output by 40% while still maintaining enough working capital to manage larger orders. Plus, their monthly payments were predictable, making budgeting even simpler.
Assessing Risks and Mitigation Strategies
While asset finance comes with a lot of advantages, it’s crucial to be aware of the possible downsides:
Interest costs can really pile up over time. Generally, the total amount you end up paying through financing is higher than if you were to buy it fully. So, make sure to compare asset finance rates thoroughly before you make any decisions.
There’s also collateral risk to consider since the asset itself usually secures the financing. If you find yourself unable to make payments, you could end up losing both the asset and any money you’ve already put in.
Additionally, asset valuation can become tricky if the equipment loses value faster than you anticipated. This could lead to complications if you need to terminate the agreement early.
To effectively manage these risks, consider the following steps:
- Take the time to read through agreements carefully before you sign anything. Make sure you fully understand all the terms, especially those related to early termination.
- Look at the total costs over the entire financing period, rather than just focusing on the monthly payments.
- When deciding between leasing and financing options, pay close attention to the residual values.
- Align the financing terms with the expected useful life of the asset. It doesn’t make sense to finance something for 7 years if it’s likely to be outdated in just 5 years.
- Cultivate a good relationship with your finance provider. A reliable asset finance broker can help you structure deals that truly protect your interests.
The most successful businesses don’t just turn to asset finance as a last-minute option; they use it strategically. They take the time to evaluate which assets are worth financing and which ones are better off being bought entirely.
By grasping both the advantages and potential pitfalls of asset financing, you can make smart choices that not only fuel your business growth but also safeguard your financial well-being.
Asset Finance with FinanceCorp
Asset finance is a key tool for business growth. FinanceCorp asset finance offers simple ways to manage your cash flow while growing your business.
With asset financing, you can keep your cash for other needs while still getting the tools to make money. It’s a smart choice for many small business owners who want to grow without risk.
Ready to take your business to the next level? Don’t let cash flow slow you down. FinanceCorp’s asset finance solutions can help you get the equipment you need today.
Let FinanceCorp help you unlock growth with the right asset finance solution. Call us on 1300 410 784 or click here to enquire and get started today.