The business landscape has always been competitive- and always will be. For any company looking to grow and scale, significant investment is required, not just upfront but at regular intervals to stay ahead with the latest technology that enhances operational efficiency and business profitability.  

While you may already be familiar with strategies like commercial asset finance to support business growth, you might still be unsure about how it works and how it could benefit you. Likewise, you may not have received the guidance needed to explore this financial tool effectively.  

To help, here’s a breakdown of some key terms commonly used in the world of commercial asset finance. 

Commercial Asset Finance Explained

In essence, commercial asset finance helps keep your business operations running smoothly and growing by allowing you to acquire essential assets while managing your cash flow effectively.  

The process typically begins with identifying the equipment your business needs– that’s the easy part. The challenge comes when you realise you may not have the funds to finance all of it upfront. In some cases, depending on the type of asset, purchasing outright might not even be the most practical option.  

This is where commercial asset finance comes in. It enables you to acquire necessary assets such as machinery, equipment, vehicles, office technology, medical systems, and energy solutions without having to pay the full cost upfront. 

Instead, payments are spread over time, helping you maintain healthy cash flow. In some cases, you may even have the option to rent equipment, allowing you to upgrade to the latest technology as it becomes available.  

3 Types of Commercial Asset Finance 

There are various types of asset finance, but three of the most common are leases, hire purchases, and loans. 

Leases

A lease is an agreement that allows a business to use an asset for a fixed period, typically with payments made monthly, quarterly, or annually. In some cases, at the end of the lease term, the business may have the option to purchase the asset at its current market value, which is often lower than the initial cost. In Australia, there are three main types of leases:  

A finance lease is used for high-value purchases. This type of lease transfers the risks and rewards of ownership to the business. The business is responsible for maintaining the asset and managing any associated risks.  

An operating lease is a mid-term lease ideal for assets that may become outdated over time. Unlike a finance lease, the lender retains ownership and assumes the risks associated with the asset.  

A novated lease is specific to vehicle leasing. This arrangement allows businesses to enable employees to finance a vehicle and its running costs through salary sacrifice. The vehicle is primarily for personal use by the employee.

Hire Purchases 

Just as the name suggests, a hire purchase agreement involves a buyer making continuous installment-like payments until the total purchase price, including interest is paid off. 

Within a hire purchase agreement, you have the option to pay for the full purchase price of the item at any point during the agreement period. If you can’t keep up with the agreed payment terms, the item may be repossessed by the seller. 

Loans 

Sometimes referred to as a ‘chattel mortgage’, an equipment loan may be suited towards businesses that want to own the equipment outright. Typically, a chattel mortgage follows a similar structure as a traditional home loan or a mortgage. 

In contrast to a hire purchase agreement or a lease, a loan gives you the ownership of the item straightway. All you need to do is pay off the loan through an agreed upon payment plan. 

Choosing the Right Option 

Before you select and agree to any form of commercial asset financing agreement, it’s important to understand your options and the agreements you might be signing on to. It’s always best to seek the advice of an expert, whether a financial advisor or even an insurance agent. 

By partnering with an insurance agent, it’ll simplify the process of acquiring the right commercial asset finance. Most insurance agents are well-versed in guiding businesses towards determining the most appropriate type of asset finance that best suits their needs while providing them with resources to obtain the best insurance coverage to protect their high-value assets. 

Let Morgan Insurance Brokers Help 

If you’re keen on leveraging the power of commercial asset finance to grow your business, reach out to our team of experienced insurance brokers. We’ll guide you through the nitty gritty details of commercial asset finance to help you meet your current and future business goals.