Cash flow is the lifeblood of any business. It’s essential for day-to-day operations, and the key to long-term growth. So when investing in new assets, it makes sense for businesses to choose finance solutions that can minimise disruptions to their cash flow.
Rather than tying up large amounts of capital by paying cash up front for big-ticket items, businesses can instead use facilities such as commercial finance agreements and leases to secure the use of the vehicles and equipment they need, preserving their liquidity to meet expenses or take advantage of new opportunities as they arise.
Asset finance is also a great solution for businesses that have the potential to grow but don’t have enough cash on hand to fund an expansion. It allows them to take possession of new income-producing assets and put them to use generating returns immediately.
This form of business financing may also open the door to higher-quality equipment than a business can’t afford to pay cash for. Therefore avoiding the need to compromise on important features and enabling businesses to upgrade their assets to the latest models and technology more frequently.
Repayments are made over an extended period (typically 1 – 5 years), which more accurately reflects the useful life of the asset, instead of a lump-sum payment up front. Instalments can be fixed at the same monthly amount or can be structured to fit each business’s unique cash flow requirements, while a balloon payment can be set at the end of the term to lower regular monthly outgoings. Plus, repayments are usually partially or entirely tax-deductible.
One example of the finance solutions businesses can use to quickly take ownership of cars, trucks and other equipment and get moving without big cash outflows is a Commercial Finance Agreement. Also known as a chattel mortgage, this is a form of lending that can be used to acquire passenger and commercial vehicles, whether new or used and from a dealer or through private sale, as well as construction, earthmoving or other equipment.
An alternative to Commercial Finance Agreements is a Finance Lease. In this case, a finance company purchases and remains the legal owner of an asset, and then effectively rents it to a business for a regular payment over an agreed period.
At the end of the agreed lease period, there may be a wide range of options available to the business leasing the vehicle or other asset: they may choose to refinance it for another term, to take ownership (after paying any residual value) or to replace it with a new leased vehicle.
To learn more about the asset finance options available to your business, speak to an accredited Metro Finance broker today. Before making any investment decision, consider consulting to your accountant or seeking independent financial advice.