What is an Asset Based Loan?
When a business begins to grow rapidly, their overhead expenses may also grow so rapidly that they begin to have cash flow issues. While they’ll eventually be able to get on top of that cash flow, they may need assistance in the present. These companies will often take out an asset based loan. Asset based loans will help these small to medium sized companies manage the growth and finance further growth in a sustainable and profitable way.
How do Asset Based Loans work?
Basically, rather than paying a deposit to the bank and receiving a loan, you use an asset as a deposit, or rather, security. It’s similar to how your home might secure your home loan. The asset works as security in the circumstance where you can’t repay the loan. The “asset” is typically your accounts receivable, but can extend to equipment, inventory, or other assets — owned by yourself or your business.
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Chattel Mortgages
Chattel mortgages offer a different financing option to business owners to purchase equipment, company cars, or other company assets. A chattel mortgage is quite similar to a traditional, fixed rate home loan, as whichever asset you purchase, using the loan (or chattel mortgage) will act as the security on the loan.
Asset Leasing
Similar to chattel mortgages is asset leasing. Asset leasing is basically where your lender will agree to provide you with an asset to use. The lender will maintain ownership over the asset and you’ll make repayments on the asset for the duration of the lease term. At the end of the lease period, you can either make a residual payment on the lease to take over ownership of the asset, sell the asset, or refinance the asset.
We offer asset leasing on equipment like machinery for businesses or on cars for business or personal use.
Novated Lease
This is where you can include a car in a salary package for an employee under a “lease”. Your lender owns the car and you and your employee will sign an agreement where you share responsibilities for the loan. The lease is then paid out of your employee’s salary through pre-tax and post-tax deductions. This is sometimes referred to as “salary sacrifice”.