Asset Finance refers to a type of lending used to fund business assets (such as vehicles, equipment and machinery), or to release cash from the value in assets that you already own. It allows businesses to fund their assets on a month-to-month arrangement, rather than making huge capital purchases outright.
There are two main forms of asset finance:
- Finance to purchase additional assets (aka equipment finance), usually income-generating assets that will help your business to grow.
- Finance secured against your existing assets, allowing you to unlock capital to assist with buying new assets or funding other business related costs.
What type of assets can be financed?
Assets are classified as either “hard” or “soft”. A hard asset will usually have an identifying serial/chassis number, and can be financed both new or used (eg. cars, commercial vehicles, plant equipment etc.). Soft assets generally have limited resale value and include items such as IT hardware and software, medical equipment, CCTV and office fit out.
Hire purchase is an agreement in which the lender acquires an asset on your behalf and leases it back to you at a fixed monthly rate for a set term. It is the most common type of asset finance for commercial vehicle purchases, however it can also be used for almost any type of business equipment.
Although the asset is officially owned by the lender, business expenses such as depreciation, running costs and interest paid can be claimed for tax purposes. There is an option to have a residual balance at the end of the lease term, which can be used to reduce the overall monthly payment amount. Once the residual is paid, the ownership of the asset transfers from the lender to you.
A chattel refers to any item of property excluding real estate, and a chattel mortgage is a type of loan where the lender registers a mortgage over an asset purchased by you, the borrower. If the borrower defaults on the loan, the lender can claim the asset against the mortgage.
As you officially own the asset, you are able to claim depreciation and interest expenses, as well as input tax credit from GST incurred. Chattel mortgages usually come with the option to leave a residual balance which may then be refinanced, or to pay down the loan in its entirety by the end of the term.
Novated leasing enables a business to offer a leased vehicle to employees at no cost to the business and with potential tax benefits for the employee. It is a convenient way for staff to finance a car for personal use, and can be used to attract high quality employees to the company.
The structure of a novated lease is that the employer leases a vehicle in the employee’s name, then deducts the expense from the pre-tax salary of the employee through salary sacrifice. At the end of the lease term the employee has the option to purchase the vehicle at the residual amount, refinance the lease or take out a new lease.
If you think asset finance could be a good option for your business, contact an Assembly Finance specialist to find the asset finance product that will work for you.