Whether you work out of a van or a storefront you probably, you need to be working with the right assets to offer the best service to your customers and run an efficient operation. But purchasing new or even second-hand assets can put a severe dent in your working capital.

That’s why many Australian businesses, franchises or not, use finance to cover the costs of new assets and maintain liquidity. With traditional lenders becoming more risk-averse and unwilling to provide funding, asset finance is an increasingly popular solution for Australian businesses.
In this brief guide, we’re going to cover everything you need to know about asset finance to determine if it’s a good solution for your business.

What is Asset Finance?

Asset Finance is a financing solution that enables businesses to access the funding they need to purchase an asset. Funding is usually provided in a fixed-term loan repaid in regular instalments over 24 to 60 months.
The funding allows the business to spread the cost of purchasing an asset over a more extended period and use the additional revenue the asset generates to pay for the finance cost.

Asset Finance can be used to fund:

• Business asset
• Machinery
• Vehicles
• Technology

How Does Asset Finance Work?

Essentially, it is a loan that relies on the asset being purchased as security rather than any other form of property, and generally aligns the funding term to the useful life of the asset.

For example, let’s say that you run a “Man (or Woman) in a Van” franchise and the old ute you’ve been using needs an upgrade, and your franchisor requires you to purchase a new tool every 2 years to keep up with technology.   The new ute will cost $35k and the new piece of kit around $10k

With asset finance, you can fund up to 100% of the asset value.   You pay the ute off over 5 years because that’s how long it will be before you need an upgrade, but you pay the tool off in 2 years to its paid out before you have to replace it

At the end of the financing period, you can then replace them at a similar monthly cost to what you’re used to paying, keep using them or trade them in… its up to you

Similarly for shop based businesses, an Asset Finance facility can be used for things like forklifts and racking, shop fit outs, computer equipment and even signage in some instances.

In all cases, it means spreading the cash cost of an asset out over years instead of a massive hit to your cash flow at one time..

Chris White | Franchise Finance Specialist

Contact Chris at chris@bdacapital.com.au or call 08 9228 9812.