In business, cash is king. If you are a business owner, how your spend your precious cash is critical to your success, especially when you’re looking to purchase an asset with the goal of taking on more work, bigger jobs or simply operating more efficiently.
However, if you only used cash to purchase assets, it would take a long time to save enough enough to get there. In fact, in Australia 60% of small businesses will fail within the first 3 years, and a staggering 50% of those who fail were actually profitable. Time and time again, top reasons they fail are due to a lack of funding and cash flow mismanagement.
The secret on achieving faster business growth and more cash flow is asset finance. In this post, I am going to outline the kinds of assets that can be financed (primary, tertiary) and the respective products (chattel mortgage, lease, HP) available.
Assets That Can be Financed
The assets you can finance come under 3 categories – primary, secondary and tertiary.
As a rule of thumb, primary assets have more resale appeal than secondary assets, and secondary assets have more resale appeal than tertiary, whilst tertiary virtually has little to none. This is the general differentiator between them, and various asset finance lenders have different risk appetites regarding which ones they will finance.
1) Primary Assets
Primary assets are the top asset class in terms of their resale value. Examples of primary assets are cars, trucks, forklifts, earth moving equipment, trailers and agricultural machinery.
2) Secondary Assets
Secondary asset examples are medical, dental equipment, print and packaging equipment, food manufacturing, plant services and so on. These assets are considered to have less value than primary assets but have some value nevertheless to the market.
3) Tertiary Assets
Finally, tertiary asset examples are fit outs, IT equipment, fitness equipment, scaffolding, Point of Sale systems, software etc. These assets are fast depreciating assets that have the least resale value compared to primary or secondary assets.
The list of assets under each tier is exhaustive – you could quite confidently say if it has a serial number and a business purpose, there is an asset finance lender out there for it.
The Types of Asset Finance Products
In terms of the asset finance products available there are four:
(1) Chattel mortgage;
(3) Finance lease; and
To decide between them you should discuss the tax and cash flow benefits with your accountant because depending on your situation, these can be much more material costs than the interest cost hence it should be at the top of your considerations.
It goes without saying that not all products and lenders are created equal when it comes to the requirements to have your asset finance approved. Stay tuned for the next blog post for what they are.
For now, just remember that 3 tiers of assets which you can finance and the 4 products that are available. If it has a serial number and a business purpose, then there is a lender out there who will finance it!
Speak to a Broker
If you have any questions or comments on this topic, you are more than welcome to get in touch with us via e-mail: ). You can address your email to anyone on our broking team.
For more asset finance tips, please stay tuned or head to our YouTube channel – “Asset Finance Series“.