Types Of Asset Finance

Types Of Asset Finance

A company’s accounts receivable, inventory or short term investments are typically used for asset finance, which is the process of obtaining equipment needed to grow by financing the acquisition with assets. The process means that a company doesn’t have the costs of buying the equipment outright, although a charge for using the assets over a fixed term is assessed, and the financier will require security.

There are several different types of asset finance, and knowing which type to choose can save your company money and time, provide tax advantages and reduce the possibility of working with obsolete equipment. Your company’s tax advisor or accountant can help you to make the best decision.

Commercial Hire Purchase

The title of the asset is transferred to you at the time you make the final instalment payment. One advantage of this type of asset finance is that payments can be adjusted based on your cash flow and overall financial situation, including such options as a larger final balloon payment, a larger deposit, and a longer loan term.

Chattel Mortgage

Your loan agreement is secured by the asset which you own from the outset, making this a popular finance option for many companies. Again, this plan offers flexibility including the ability to free up cash flow when it’s most needed, a variable loan term, a larger final payment and a potentially larger amount as a deposit.

Finance Lease

If your company needs the latest equipment or vehicles but doesn’t want to tie up a lot of capital, this option can be ideal as you bear the risk of disposing of the asset when the lease term is ended, although the financier owns the asset. The Australia Tax Office requires a residual value in line with the use of the asset, and you have the option to vary the terms of the lease.

Novated Lease

A novated lease is the ideal option for anyone wanting to include a vehicle as part of their salary package. The responsibilities of the loan are shared by the employee and employer, while the asset is owned by the financier. The HR department at your company is the place to start if you are interested in a novated lease, and your final payment will be determined partly by the Tax Office’s guidelines and partly by your financial situation.

Operating Lease

Several different assets can potentially be funded by an operating lease. One advantage of this type of asset finance is that the payments won’t show up as a liability on your balance sheet, as it’s often regarded as being another operating cost.

It’s always a good idea to talk to an experienced financial advisor to see which types of asset finance are the best options for you and your company. You may be excluded from some types of asset finance, as all the options listed above have various circumstances and conditions regulating them.

If you need help securing asset finance for your company, speak to FinanceCorp today.