The key to operating a successful business lies in the assets you use. Thus, knowing how to fund these assets can greatly impact your chances of success. There are a lot of things to consider when looking to fund your business assets which is why it is important to be well informed before making any major decisions.
Whilst we all like to be debt free, cash flow problems can arise if free cash is used to purchase long term assets.
Actively avoiding it by funding larger cost asset purchases, even when you seemingly don’t need to, can be a strong step forward.
What is Asset Finance?
Asset Finance simply refers to a loan raised to purchase a vehicle, plant, or equipment.
The funding allows the business to spread the cost of purchasing an asset over an extended period and use the revenue the asset generates to pay for itself.Because it uses the asset as security, no property security is required, and it can be arranged separately to any other funding arrangements you may have.
Let’s Talk About Cost
Normally these loans attract a fixed interest rate based on amount, term, asset age and overall risk so its hard to quote a rate. What we can say though is that they remain a competitive method of funding and can provide benefit beyond cost of funding.
If you are looking to refinance existing debt or working capital and cash flow, the best place to start is speaking with a Franchise Finance Specialist to get you started on the right track. BDA Capital offers local WA knowledge and experience to help you fund your business assets.
An example:
ABC Distribution and Logistics Pty Ltd needs to purchase a new electric forklift that will cost $45,000 and the associated a battery and charger will cost an additional $5,000.
The company has the cash , but also has a tax bill coming up that they would have to defer if they use cash for the forklift so instead they fund it over 5 years at $1000 mth.
The forklift replaces and old one that is costing $2000 mth to maintain and fuel, making the business $1000 mth better off.
Why is this important?
Too often we speak to businesses who have tried to remain debt free, using all of their free cash to buy their assets and pay their creditors before they are due.
Normally, the business ends up with tax debt and poor creditor standing, and the owners aren’t drawing the income they would like. Often this means trying to borrow funds when you are already showing signs of stress which adds complexity and, often, cost.
We’ll talk about cash flow funding in more detail next issue but funding your asset purchases and cash flow with suitable funding lines is key to avoiding longer term pain.
Where to from here? If you are looking for funding options, BDA Capital is here to help. Book a consultation with our Franchise Finance Specialist today.
Chris White
BDA Capital | Franchise Finance Specialist
M: 0429 490 950 E: chris@bdacapital.com.au
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