BUSINESS & ASSET FUNDING

Using a special purpose asset finance product can be beneficial to your overall business.

Structuring your business funding correctly can help you to capitalise on opportunities that arise unexpectedly.

First rule in business: expect the unexpected.

If your enemy is secure at all points, be prepared for him. Attack him where he is unprepared, appear where you are not expected.
Sun Tzu, The Art of War

When looking at how you will structure the debt side of your balance sheet it is wise to consider using a combination of cash flow and also Asset finance products. An efficient business should operate with a combination of debt and equity in order to reduce its weighted average cost of capital and therefore its required rate of return. Debt funding, while sometimes quite difficult to organise for smaller enterprises, is considerably cheaper and still easier to raise than equity funding. Many business owners may be reluctant to raise equity as it will dilute their shareholding and, unless carefully organised, add complexity to their operations.

Some of the benefits of looking to asset finance include:

• many financiers will not require financials for car loans up to $150,000 or more. This simplicity is beneficial if your financials are not in the best condition and would expose you to a barrage of questions from the financier. We stress, you should not use this as a way of sourcing finance that your business finances wouldn’t support.
• the equipment is used as security for the loan, often along with a director’s guarantee however some financiers will forgo a director’s guarantee if you structure the loan to reduce the financier’s risk. There is no need to record a General Security Interest over the borrowing entity and this will better enable you to qualify for other borrowing products.
• loans are usually made at a fixed interest rate and with a fixed repayment. This helps you with managing your interest rate risk plus it locks your payments into a present value dollar amount. Over a 5 years term with average price inflation can deliver you a benefit.
• administering an asset finance product is straight forward
• there can sometimes be depreciation and tax benefit in financing an asset in this way

Diving a little deeper into some of these points:

No Financials
While it is sometimes easier to arrange arrange an asset finance loan for some asset types without providing financials, where your financials are available it is best to provide them. Some financiers will make a larger loan facility available to you for certain asset types. This can be useful in building a relationship with the financier that can be used at short notice in the future.

No Loan Security
Your initial loan with a financier may need to be supported with a director’s guarantee however if you add a deposit and reduce the size of your balloon payment at the end of the term you will reduce the risk to the financier and they may accept your loan without a director’s guarantee and without increasing your funding rate.

Fixed Rates, Fixed Repayments
Fixed interest rates provide an element of certainty that is often desired by business owners, especially in a world of constant change. Locking your asset finance into a fixed rate can eliminate a business risk.

Administration and Tax
The type of product that you should use in your business will depend on your personal circumstances as will the corresponding the specific tax benefit that you could derive.