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Asset finance also known as a Chattel Mortgage, Lease or Equipment finance is a method to obtain finance via securing an asset over a period of 12 to 72 months dependant on the age and type of asset.
Financing equipment and vehicles can be a great way to maximise cash flow and provide tax benefits for your business, whether it be fitting out a restaurant or purchasing heavy machinery, North Capital will guide you through the Asset Finance process to ensure that you have the structure that suits your business.
Fixed: Lending can be placed on fixed terms for up to 7 years, this allows you to predict the payments for the chosen term allowing for cash flow planning. Month to month payments will be a fixed amount. A downside of fixed is usually that additional or early repayments may come with penalties
Variable: Variable terms are a great way to achieve flexibility of payments, it allows you to pay more or less depending on how much has already been paid off of the loan, or pay out the loan completely with no early exit fees. By stretching a loan term over a longer period of time it allows you to maiximise cash flow and increase the payments when cash flow is strong.
Balloon Payments: are a way to reduce the contracted payments by agreeing to pay a percentage of the loan at the end of the loan term. Again this is another method of maximising your businesses cash flow by way of debt structuring with balloon payments ranging anywhere from 1%-33% of the total loan amount. During the term, repayments will be based on the remaining loan amount.
Once the term comes to an end you can choose to either pay out the balloon or refinance the balloon. A downside to balloons is; having to pay out a large amount at the end of the term or being required to pay application fees to refinance the remaining amount.
What can be placed on Asset Finance?
Many items can be financed under asset finance however some may required an accountants letter to stipulate its purpose:
- Vehicles: Cars, Bikes, Trucks, Vans, Boats, Aircraft, Trailers
- Office Equipment: Printers, Computers, IT equipment & furniture
- Restaurant Equipment: Ovens, Refrigerators, Heated/cooled displays
- Yellow Goods: Excavators, Graders, Rollers, bulldozers
- Construction: Survey equipment, HIAB, Cranes, Compactors (Scaffolding is unable to be financed under Asset finance)
What is required to be approved?
When applying for asset finance there are many ways to proceed dependent on the lender of choice and as a result may require a range of documents, below are some methods of applications that can be accessed.
Low Doc Application: Low documentation loans are a simple application type that requires very little financial information, there are however conditions that will need to be met, for example; the business may need to show operating figures of at least 12-24 months or provide a 20% deposit, a higher interest rate may also be incurred to mitigate the lender’s risk.
This form of application can often be provided to new businesses who don’t have competed or available financial information.
Full Doc Application: Full documentation loans are that where all financials and tax returns are required by the lender to reach an approval, this process can take more time to process however due to a having more detailed information available the lender may look to provide better rates.Usually Tax Returns are required for either 12 or 24 months of the businesses operation.
Self-Declared Application: Similar to a Low Doc loan a self-declared application consists of the business providing a self declaration of the businesses performance from the previous two financial years.
Self declared applications are offered by many lenders where the borrower meets certain conditions such as; Residential security is held by the guarantors (Directors), Deposit of minimum 20% is provided or a history of finance with the chosen lender.