Financing equipment and buying fixed assets for your business

Financing equipment and buying fixed assets can be crucial for businesses who need to outlay funds to purchase crucial assets for their business.

Many businesses hesitate to make significant investments needed to push their organisation to the next level because they are not sure on how to structure the purchase to minimise impact on cash flow.

Asset finance can be used for growth, to replenish existing assets, upgrading old equipment or adapting to technology upgrades – for example, a fleet upgrade to EVs.

When structured correctly, there may also be tax benefits.

The Importance of Equipment and Fixed Assets

Equipment refers to any tangible items used in the production of goods or services, such as machinery, tools, vehicles, and technology. Fixed assets are long-term investments that have a useful life of more than one year, such as buildings and land.

These types of assets are crucial for businesses as they allow for increased efficiency and productivity. For example, purchasing updated machinery can speed up production processes, while buying a new building can provide more space for expansion. However, these investments often require a significant amount of capital, which is where financing comes into play.

With the right advice, the process can be simple and may not require a significant upfront investment. For a business that has been running for two or more years, and is registered for GST, and where the proprietor is a property owner, asset finance can be a solution.

Ways to Finance Major Asset Purchases

One of the primary concerns when it comes to financing equipment and fixed assets is the impact it may have on cash flow. There are a range of loan options available, and your specific requirements and current financial position are instrumental in choosing the one that works best for your business goals.

Instalment Payments:
This is the most common type of financing, where the borrower repays the loan in equal instalments over a set period. The advantage of this option is that it allows for predictable cash flow management. You will pay interest on the loan.

Balloon Payment:
This type of loan has smaller monthly payments, with a large final payment at the end. It can be beneficial for businesses that experience seasonal fluctuations in income.

Instead of purchasing equipment or fixed assets outright, leasing them allows for smaller monthly payments. At the end of the lease, the asset can be returned or, depending on the terms of the lease, the business may have the option of making a final lump sum payment and retaining the asset. Leasing also provides the flexibility to upgrade to newer equipment in the future.

Hire Purchase:
While it looks similar to leasing, under a hire purchase agreement, the asset becomes the property of the business, quite literally hire to purchase. This helps spread the payments over time for cash flow purposes. Interest is built into the payment instalments.

Line of Credit for Asset Purchase:
A business can get an Asset Finance Line of Credit specifically for asset purchases. The loan works the same as a traditional line of credit however the fund must be used to purchase assets for the company.

Get Expert Advice

Each option carries its own set of pros and cons; be aware that if you find you need to refinance a loan agreement, it possibly creates additional expenses and can have a negative effect on cash flow. We strongly advise businesses to seek financial advice from the appropriate specialists to ensure the loan structure is right for your specific needs from the get-go.

Finance Advisory Co are specialists finance brokers in commercial loans. Contact us today to find out how we help your business grow.

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Credit Representative 541104 is authorised under Australian Credit Licence 389328.  Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product.