Asset loans and used asset finance – what's right for your business?

Speirs Finance

We all understand that buying cheap does not always equate to the best value purchase but when it comes to finance, the interest rate (particularly in an upwards trending market) is often the primary focus and this can lead to poor customer outcomes. This is because decisions makers often overlook the importance of maintaining positive cash flows in their businesses, especially in relation to their asset loans or used asset finance structures. Financecan be complex and other more important factors like loan structure and terms and conditions can have a much greater impact on cash flow than interest rate.

It’s very common to see businesses with cash flow issues that have poor asset finance or asset loans structures for new assets and used asset finance as the primary cause for this. A typical example of this situation is a customer taking up a very low interest on a new asset (often on dealer a discounted interest rate where the dealer is subsidising the rate by reducing margin) on a term offered of 2 or 3 years maximum. The asset may have a useful life of fifteen years, but in most cases a short term like this does not make sense and won’t be able to generate enough annual surplus to pay off the asset loan and likely lead to cash flow problems in the business.