When considering asset finance options, ask yourself:
how much capital do I need to grow my business?
when do I need to smooth the bumps in my cash flow?
what are the tax outcomes of asset financing?
how long will I need the equipment and will I need to upgrade it?
is technology rapidly changing in my industry?
do I want to ‘finance to own’ or ‘finance to return’ my asset?
Generally speaking, asset finance options include: Chattel Mortgages, Novated Leases and Finance Leases. Each is suited to different commercial circumstances, so when considering your options, you may want to talk to your accountant or tax advisor. Below is an introduction to these main types of asset finance.
Chattel Mortgages are a popular finance solution where you own the asset from the outset and your loan agreement is secured by the asset. You can tailor your loan payments by choosing the term — typically up to five years. Other payment options can include a deposit and a larger final instalment. You can also structure payments to free up cash flow at the times of year you need it most.
With a Finance Lease, the financier owns the asset however you bear the risk of disposal (of the asset) at the end of lease. This type of lease can benefit businesses that need the latest vehicles or equipment without tying up a large amount of capital. You can choose lease payments in advance or arrears and terms up to five years. A residual value is required in line with the asset’s use and the Australian Taxation Office’s guidelines.
If you want to include a vehicle in your salary package, a Novated Lease can help. The financier owns the asset, while you and your employer sign a novation agreement to share the responsibilities of the loan. Typically loan terms are from 12 months to 5 years. Monthly lease payments and a final residual payment are based on your circumstances and guidelines set by the Australian Taxation Office. If you are interested in a Novated Lease, talk to your HR department for options.