Sometimes, you may come across some problems regarding your business assets. Sometimes, you may need to purchase new assets, but your capital is not enough or this may cause cash flow problems. In some cases, you might need extra capital yet you don’t want to or cannot apply for a bank loan due to certain reasons. When it comes to dealing with assets, you should always look into financing, which can generally help you in dealing with your problems.
First of all, there are two types of asset financing. One is to lend money secured to existing assets and the other is to finance in order to secure additional assets. The first method basically means obtaining a loan by using assets you own as collateral. If you fail to repay your loan, the lender will take possession of said assets. This type of financing is called asset refinancing. The assets you use as collateral can vary and some firms can have very flexible arrangements so that you can use virtually anything valuable or that is part of your business. The value of your assets will determine the maximum amount you can loan.
The other type of financing is the more common one, particularly when it comes to purchase expensive equipment, machinery or vehicles for business uses. Financing terms and rates vary from firm to firm, and it may be a good idea to hire finance brokers Sydney to find a firm suitable for your business. There are a few types of financing to get new assets, which are discussed below in more detail:
• Hire Purchase – This type of financing is used by both businesses as well as normal people to buy expensive items. When it comes to a business, it is a very convenient method to purchase new assets. Basically, a small down payment is made when the requested item is purchased, while the rest is settled in monthly instalments. At the end of the payment period, you gain full ownership of the purchased assets and are free to use as you like. You will still have to pay for any maintenance costs during the payment period.
• Lease Purchase – Here, the lender will purchase the asset for you and rent it you on a lease. You will receive said asset instantly just after purchase and can start using it after paying some of the upfront cost. You are then required to pay monthly instalments, just like in hire purchase. The difference with hire purchase is that at the end of the repayment period, you have various options. You can continue leasing the asset, purchase it outright (the amount you repaid will be factored in the purchase cost) or even upgrade the asset to a newer one.
• Finance Lease- This is somewhat in between hire purchase and lease purchase. The payment is similar to hire purchasing, but the asset remains in the ownership of the lender. It has a few uses, such as giving tax benefits.
• Operating Lease – This can be described as renting an asset from the lender, who will still pay for any maintenance cost for the asset. Operating leases are cheaper than financing assets using other methods, but you don’t get ownership of the assets.