Asset Finance

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Natalie

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What is asset finance?

Asset finance is a category of business loan products used to buy new assets, or replace and upgrade existing assets for a business. Asset loans are generally secured by the purchased asset, with terms relative to both the type of asset loan and the lifespan of the product. 

In Australia, there are many types of asset finance products, offered by just as many individual lenders. While the rates, terms, and fees may vary between lenders, most asset finance loans work in a similar way. The maximum amount you can borrow is up to $2,000,000.

How does asset finance work?

There are several options available for asset finance in Australia. When enquiring about asset finance, you can quickly match the needs of your business to the most appropriate form of asset finance from various lenders. Generally, asset finance will involve:

  • Calculating how much you need to borrow to finance the assets you require for your business 
  • Applying to a lender for asset finance 
  • Meeting the approval criteria for the lender 
  • Receiving finance to purchase the asset, or receiving the asset directly from the lender 
  • Making regular repayments to the lender until the finance amount and any interest or fee charges are repaid in full 

Considerations you will need to take into account when comparing asset finance options are:

  • If it is more suitable to purchase the asset or rent the asset for a set period 
  • Any benefits your business may receive from certain types of asset ownership 
  • Any tax deductions available through certain types of asset finance 
  • Any early repayment penalties 
  • If ownership is immediate, transferred at the end of the term, or optional at the end of the term 
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Many forms of asset finance offer unique GST and tax benefits.

Who uses asset finance?

Asset finance is popular with SMEs that have limited access to cash flow and would prefer to pay for assets over a set period. It can also be used for low-value assets — such as computers — which you plan to upgrade in a short time, or which will likely become obsolete.

  • Work in an industry that requires constantly up-to-date technology 
  • Want to purchase an asset for everyday business use and reclaim the GST on their next BAS 

Assets can include major investments, such as an office or warehouse, mid-range investments such as a company vehicle or manufacturing equipment, and minor assets, such as laptops, stock, furniture.

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Asset finance allows your business to finance essential assets at a reduced monthly cost, instead of needing to pay a lump-sum amount.

What assets can I finance for my business?

If you qualify for asset finance with a lender, you can finance almost any asset related to your business. This can include:

  • Vehicles — e.g. company cars, trucks, trailers, delivery vans, motorcycles 
  • Electronics — e.g. computers, servers, GPS equipment 
  • Machinery — e.g. excavators, lifts and access equipment, forklifts 
  • Equipment — e.g. printing, medical, dental, engineering 
  • Construction — e.g. tools, trade vehicles, scaffolding 
  • Earthmoving — e.g. yellow goods, machinery, diggers, front loaders
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Not all assets have to be objects. You can even use asset finance for an office fit-out.

Asset finance case study

Type of business: Real Estate Agency 

Loan amount: $35,000 

Case: A retail agency has been operating for two and a half years and has gradually increased its sales potential and client book considerably in the previous six months. 

The agency is now looking to take on new staff, but require additional company vehicles which can be branded with the agency’s logo and branding. Based on the projected sales figures for the next three months, the agency is confident it can hire a staff member and procure a vehicle to manage the increased sales activity. 

The agency applies for finance and receives $35,000 to finance the purchase of the vehicle and additional marketing decals for the vehicle as well. The business makes steady repayments during the initial month of onboarding and training. 

In the second month, the increased activity by the agency in both marketing itself and managing more properties allows for greater profits, which the agency uses to make additional repayments. 

Instead of repaying the amount in full, the agency decides to refinance its initial loan for a further $35,000, repeating the process as the team grows again. 

This time, the agency repays the loan amount in full during the third month of the loan term and decides to reassess its situation in the following year. The agency now has additional staff, additional vehicles, and a strong relationship with their lender.

How to qualify

Most banks will offer asset finance options to their customers. Otherwise, you could choose to work with a finance broker, who will help manage your application process. 

There are also ways you can apply online, including:

  • Non-bank lenders 
  • Specialist asset finance lenders 

Qualifying for asset finance is relatively simple. Most lenders will be able to provide plenty of options if you have:

  • Been trading for at least 12 months; and 
  • Have an ABN (Australian Business Number); and
  • Are registered for GST 

Although the process will be a little more involved, you can still get asset finance if you:

  • Are self-employed 
  • Are a sole trader 
  • Have been trading for less than 12 months 
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You can usually get quicker approval on asset finance loans from specialist asset finance lenders than you can with your bank.

How to apply

You can apply for asset finance with many different lenders, including banks and specialist business finance lenders. You may also choose to work with a finance broker who will find you the most competitive offers and help complete and submit your application. 

The fastest approval speed will be offered by specialist lenders. Often, you can apply online and receive approval and finance within 24 hours. These lenders also offer a streamlined method of applying; the majority will allow you to apply using a simple, online application form. 

However you choose to apply, you will need to:

  • Demonstrate the ability to service your equipment loan or lease.
  • Meet the lender’s criteria, such as:
    • An ABN and GST registration
    • An acceptable credit rating
    • A minimum level of turnover
    • A maximum level of other debt
  • Supply all your supporting documents, such as:
    • Proof of identity
    • Financial records (provided by your accountant):

      Profit and Loss Statements
      Balance Sheet
    • Details of the asset you wish to purchase
    • Business bank statements
    • Rates notice (if you own a home)
    • Rental agreement (if you are renting)
Money Logo Money Tip

Applying for asset finance with your bank will often result in lower rates, but a much longer application and approval process than through alternative lenders.

What are the interest rates and fees for asset finance?

Asset finance interest rates vary between lenders and begin from 4.00% to 9.90% depending on the strength of the application and the risk level presented by the borrower. 

Asset finance may also include fees. This commonly includes an application fee, and some types of asset finance may also include ongoing monthly fees. If you plan to repay your loan amount early, be sure you won’t be liable for any early repayment or break fees, as this could negate any interest savings you might make on the early repayment. 

Make sure you understand any fees before signing an agreement with a lender.

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Secured finance will generally have lower rates than unsecured finance.

Summary

Asset finance is a type of business finance products which are used to finance various business assets. Assets can include all types of short- and long-term business equipment, machinery, and other assets, and can even include office fit-outs. 

Asset finance is available from banks, specialist lenders, and by working with finance brokers. You can apply online with specialist lenders, and finance brokers can assist if you are unsure which lender or finance product is most suitable for your needs. 

In summary, asset finance:

  • Can be used to finance anything relating to a business 
  • Does not require a deposit in most cases 
  • Can be used to purchase assets outright 
  • Can be used to lease or rent assets from a lender 
  • Can be obtained from banks, non-bank lenders, specialists, and through finance brokers 
  • Can provide financing solutions to businesses with bad credit 

Asset finance pros and cons

Pros Cons
  • There are lots of providers and the market is competitive, so it should be easy for you to find asset finance and it’s accessible for most small businesses. 
  • Your interest rates and monthly payments will usually be fixed, so you’ll be able to budget accurately and manage your cash flow. 
  • There are lots of different options, so you can structure your asset finance to suit your business needs. 
  • It will let you acquire assets that you might not be able to purchase outright.
  • It’s less risky than a regular bank loan since it’s secured on the asset you’re buying.
  • Some of the contracts can be hard (or expensive) to cancel early, even if you want to dispose of the asset.  
  • You may have to come up with a deposit or make some down payments before you can get the asset. 
  • Interest rates can be high, so it can be more expensive than just buying the asset outright. 
  • The tax treatment will depend on what type of asset you choose and can be complicated, so you may need guidance on how to report it. 

Asset Finance FAQ

What is an asset?


In a business context, an asset is any possession you’d record on your balance sheet. It could be a valuable resource like a building, a vehicle or a piece of equipment or technology. Or it could be something that fluctuates, like the stock in your warehouse or the cash in your bank account.

What is asset finance used for?


Asset finance is often used for business purchases that have a reasonable lifespan and cost a considerable amount of money. Most often, this will include business vehicles, IT equipment, and machinery.

What are the typical interest rates for asset finance?


For secured asset finance, where the assets are used as collateral, the interest rate is generally between 5% and 8%. Unsecured asset finance will generally have higher rates.

What type of fees can I expect to pay?


Fees for asset finance vary between lenders. In most instances, there will be an establishment fee and sometimes ongoing monthly admin fees.

Can I pay out my asset loan early?


Yes. In most instances, you can repay your loan or clear your financial debt through extra payments. However, some lenders may specify that there will be penalties for doing so. If you intend to pay out your loan early, it’s best to work with a lender who is more accepting of early payouts.

Can I get asset finance with a bad credit rating?


If you are applying for asset finance, lenders will generally look at the creditworthiness and serviceability of your business, instead of your credit rating. You may be able to find lenders who will approve asset finance even if you have a less-than-perfect credit score.