By Richard Holdcroft
Paying cash for the equipment your business needs instead of taking on debt may sound like a good idea, but are you hobbling your business's growth?
Cash has always been the simplest way to buy assets such as tools, machinery or vehicles, and there's no doubt that at face value it's the cheapest. You only pay the sum agreed, and there’s no interest or monthly payments to consider.
But with interest rates currently at historic lows, the most obvious solution may not necessarily be the best one. You need to ask yourself: can you borrow money at a lower rate than the returns you can earn on your investment in new equipment? If so, then it actually pays to give your business a boost with Asset Finance.
And using Asset Finance instead of cash has many other advantages too:
- Keeping your cash on hand gives you a cushion against unexpected knocks, and the ability to act quickly on new opportunities
- Finance may open the door to higher-quality equipment than you can afford to pay cash for, so you don’t need to compromise on features that are important to you
- Putting off the purchase of equipment until you’ve saved enough doesn’t make sense when prices are on the rise
Today’s nimble non-bank lenders will help you fund equipment even when the banks won’t, and with more competitive rates and flexible repayment options to suit your cash flow.
You can usually have funding of up to 100% of the purchase price available in as little as 24 hours. And your new investment begins paying its way from day one, so the longer you wait to invest in productive equipment, the more money you risk losing out on making.
Types of Asset Finance
Asset Finance covers a wide range of different funding solutions, so consider speaking to your accountant or advisor on financial matters to ensure you select the option that works best for you.
For example, investing in equipment may enable you to claim tax deductions and to take advantage of the generous instant asset write-off scheme before it expires.
Popular types of Asset Finance arrangements include:
1. Hire Purchase
In a hire purchase arrangement, a finance company will buy the asset and then hire it to your business to use. You have beneficial & tax ownership of the asset throughout the payment period and at the end of the repayment period legal ownership transfers to you.
2. Equipment Finance
Equipment finance is often referred to as an equipment loan or chattel mortgage. Here you own the asset from the beginning of the finance period with the financier taking a mortgage over the asset.
3. Operating Lease
An operating lease is similar to a rental where ownership is with the financier for the entire contract and at the end of the period you can make an offer to purchase the asset.
4. Finance Lease
In a finance lease the financier owns the asset and you make payments on that asset for the term. At the end of the term there is a bulk residual payment that must be made by you. When you pay this residual amount ownership transfers to you.
If you’re positioning your business for the post-COVID recovery, we offer a range of flexible finance solutions to help businesses access the capital they need to grow. Speak to us today to explore your funding options.
