The time has come for new equipment. In most cases, you know what make and/or model you are going to buy before you figure out how to pay for it.
Asset financing can be a real minefield and overwhelming to navigate, especially when the sales staff starts throwing about terms like novated leases, hire purchase, balloons, and residuals. Even with all the confusing jargon, you will be relieved to learn that most of the finance products are actually quite simple.
Once you get some guidance from the experts and your understanding grows as to the differences between financial products, you will be better prepared to determine the best decision for your business. You can rely on the financial experts to help find you the best financing product to meet those needs.
Today’s choices are wide open, ranging from the traditional bank loans to novated leases. To determine what finance product is best suited for your business, the first thing you have to decide is whether you should buy or lease.
When you lease equipment, you are paying to use the equipment. When the lease term ends you must either turn the leased equipment over to the leasor, take out another lease, or with some types of leases, you can pay out the residual.
Commonwealth Bank Head of Structured Asset Finance, Nick Fletcher, feels often there are far more financing options available than business owners realise. “People talk about leasing generically, but leasing is just one type of asset-based financing that is available,” he says.
With leasing contracts, there are a number of options, especially with the financing of larger assets such as heavy-duty equipment. “Leasing facilities are not ‘one size fits all’ and boards need to recognise there is room to deliver tailored arrangements,” Fletcher says.
Hard and fast rules don’t exist as to whether it suits businesses more to lease or buy. There are advantages and disadvantages to each relating to cash flow, taxation, and other factors, which is why this is a conversation you should be having with your accountant.