Using finance to acquire business equipment may offer a range of advantages that could enhance your business’s financial flexibility, cash flow, and overall growth strategy.
The Challenge of Scaling a Business
For many businesses, the road to growth (and survival) is paved with opportunities that require substantial investment in new equipment, resources, plant, or machinery. While these investments can unlock larger projects and boost productivity, the upfront cost often presents a significant hurdle.
Many companies find themselves constrained by limited capital, with their savings quickly depleted by these essential purchases. Lacking the financial flexibility to expand, they risk missing out on earning opportunities. Asset finance offers a solution, providing businesses with a way to secure the equipment they need without sacrificing their financial stability.
Let’s explore the potential benefits of using finance to purchase business equipment:
Preservation of Capital
One of the most compelling advantages of asset finance is the preservation of your business’s capital. Instead of tying up significant amounts of cash in large upfront purchases, asset finance allows you to borrow up to 100% of the asset's value. This approach frees up your working capital for other crucial investments such as business expansion, marketing campaigns, or stocking up on inventory. Having this financial flexibility can help ensure that your business remains agile and responsive to new opportunities.
Key Benefit:
Maintain liquidity by keeping cash available for day-to-day operations and growth opportunities.
Improved Cash Flow
With asset finance, the cost of acquiring equipment is spread out over time through regular instalments. This avoids the strain of a one-time lump sum payment, helping you to manage your cash flow more effectively. It also makes budgeting more predictable, as you know exactly what your payments will be over the financing term. This consistency can help businesses plan with more confidence and prevent cash flow bottlenecks.
Key Benefit:
Predictable, manageable payments for better budgeting and smoother cash flow.
Reduced Personal Risk
In many cases, business owners personally bear the risk when making large purchases for their company, whether by using personal credit cards, securing loans against their home, or tapping into personal savings. Asset finance shifts that risk by using the asset itself as collateral. This means there’s no need to risk personal assets to acquire critical business equipment. Should any financial difficulties arise, the finance company can reclaim the asset, but your personal assets remain protected.
Key Benefit:
Minimise personal risk by securing loans against the asset rather than personal property.
Potential Tax Benefits
Asset finance often provides tax advantages that can improve your bottom line. Many finance agreements, such as equipment leases, allow for tax-deductible payments. Lease payments are generally considered a business expense, which can reduce your taxable income. Additionally, other forms of asset finance may offer tax-deductible interest or depreciation benefits, depending on how the financing is structured.
Key Benefit:
Reduce taxable income with tax-deductible payments, leading to potential savings.
Access to Better Equipment
One of the major limitations for businesses purchasing equipment outright is the availability of funds. With asset finance, you can spread the cost, which may enable you to invest in higher-quality, more efficient equipment than if you were limited to your immediate savings. Better equipment can lead to improved productivity, allowing your business to scale operations or offer higher-quality services and products.
Key Benefit:
Afford better or more advanced equipment than would be possible with cash-only purchases.
Avoid Depreciation
When purchasing equipment outright, your business bears the cost of depreciation, the gradual reduction in the asset’s value over time. In many cases, leasing through asset finance shifts this burden to the finance company. They absorb the risks associated with the asset losing value, allowing you to return or upgrade equipment at the end of the lease term without worrying about its resale value.
Key Benefit:
Avoid depreciation risks, especially with leasing options.
Flexibility and Upgradability
Asset finance arrangements often come with flexible terms, including options to upgrade equipment at or before the end of the financing period. This is particularly valuable for businesses in sectors that rely on rapidly evolving technology, such as manufacturing or IT. With this flexibility, you can keep up with technological advancements without worrying about the depreciating value of outdated equipment.
Key Benefit:
Easily upgrade equipment to keep up with technology without the risk of being stuck with obsolete tools.
Lower Maintenance Costs
In some asset finance agreements, the finance company may assume responsibility for maintaining and repairing the equipment. This can be a valuable option for businesses looking to avoid the unpredictability of expensive maintenance costs. By transferring this responsibility to the finance company, you can protect your business from unexpected repairs and ensure that your equipment remains in good working condition.
Key Benefit:
Shield your business from unforeseen maintenance expenses by outsourcing upkeep to the finance company.
Hedge Against Inflation
Inflation can erode the purchasing power of your money over time. However, by securing asset finance with fixed monthly payments, you can effectively hedge against inflation. As inflation increases, the real value of your payments decreases, allowing you to pay for the equipment at today’s prices while benefiting from the lower relative cost in the future.
Key Benefit:
Fixed payments offer protection against inflation, improving the long-term cost-effectiveness of your equipment purchases.
DISCOVER MORE:
Is Asset Finance Right for Your Business?
Talk with one of our business finance experts who can guide you through the process and help find the best solution tailored to your needs.
Call us on (02) 8313-8400 or request a call back.
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