Securing the correct type of finance will allow your business to grow, innovate, and thrive within the Australian marketplace. As a start-up with ideas or existing and trading with vision, the correct type of funding is necessary to facilitate further trading and expansion. Two of the most popular types of funding are business loans and asset finance, with specific applications depending on your business needs.
Whereas a business loan gives you overall funding flexibility, equipment-based funding enables you to acquire necessary equipment or vehicles without straining your cash flow. Probiz finance professionals will assist you in comparing a business loan vs. asset finance to determine which financing option aligns best with your goals. In this blog, we’ll explore the pros and cons of a business loan vs. asset finance to help you select the optimal financing choice.
Understanding Australian Business Finance Decisions
Australian businesses have a variety of finance options at their disposal. From conventional working capital loans to specialised equipment finance, the market is full of solutions for various business models and sectors.
Each loan product has a use. Business loans tend to provide unencumbered access to capital, and equipment financing provides companies with physical assets such as machinery or vehicles. Choosing the best among them starts by knowing how the financial instruments function.
What is a business loan?
A business loan refers to money that a lender provides, which is then used for business purposes. The loan will be either secured or unsecured based on your credit report and the lender’s offered terms.
General Types of Business Loans:
- Working Capital Loan: Suitable for financing everyday operations and paying for short-term obligations.
- Secured Business Loan: Financed by assets such as property or shares; has a lower interest rate.
- Unsecured Business Loan: No collateral, but can charge a higher interest rate.
- Line of Credit: This gives ready access to money when it is required.
When Should You Look for a Business Loan?
- Whenever you need flexible capital to expand, pay employees, or advertise.
- If your firm requires urgent funds with fewer restrictions.
- To capitalise on a growth opportunity or cope with seasonal variations.
For the majority of cases, Australian companies prefer to have a working capital loan to manage cash flow in business or supplement short-term expenses.
What is asset finance?
This type of finance allows corporations to purchase equipment, machinery, and vehicles without having to make a substantial initial payment.
Types of Equipment Finance:
- Equipment Finance: Financing to purchase or lease office equipment or heavy machinery.
- Vehicle Finance: For business-use vehicles, vans, or lorries.
- Hire Purchase: Ownership transfers after the final instalment.
- Operating Lease: You rent the asset for a specific period without having to own it.
Best Use Cases:
- For companies requiring expensive equipment but desiring cash reserves.
- Start-ups that lack the capital for outright purchases.
- Capital-intensive industries like construction, logistics, and manufacturing.
Asset finance Australia options prove particularly helpful to businesses that have to grow without disrupting liquidity.
Key Differences Between Asset-Based Funding and Business Loans
Let’s take a glance at a business loan vs. asset finance to help you compare and determine which works best for your needs.
Business Loan :
- Purpose: General business needs
- Collateral: May or may not be required
- Speed: Quick (if unsecured), slower (if secured)
- Term Length: Flexible
- Tax Benefits: Applicable sometimes, based on the circumstances.
Asset Finance :
- Purpose: To purchase specific assets
- Collateral: The asset itself is the collateral
- Speed: Moderate approval time
- Term Length: Usually tied to asset life
- Tax Benefits: Often applicable
Both are convenient financing tools, but their applications are rather different based on your financial objectives and operational requirements. Before deciding on business loans vs. asset finance, take into account the benefits and drawbacks of each.
Pros and Cons of Each Option
Business Loans:
Pros:
- Flexible use (advertising, payroll, stock).
- Quiet approval (particularly unsecured).
- Different types of loans to choose from.
Cons:
- It can require good credit or collateral.
- Unsecured ones are more expensive.
Asset Finance:
Pros:
- Reduces working capital.
- Increased likelihood of acceptance (asset-backed).
- Tax relief on repayments is available.
- Keeps equipment up-to-date.
Cons:
- Limited to asset-based purchases only.
- Assets can depreciate quicker than the repayment term.
Real-Life Examples:
- Equipment financing can be more accessible if you lack actual capital or credit history, as the asset itself can serve as security.
- Equipment financing can help a construction firm that needs to purchase a new excavator.
When to Select Which?
For Startups:
- If you have no actual capital or credit history, equipment-based funding can be more accessible since the asset itself can be used as security.
- If your needs go beyond asset acquisition, a small business loan could be more generic.
For Growing Businesses:
- Choose a business loan to finance expansion, hire new employees, or launch marketing campaigns.
- Select asset-focused funding to replace your machinery and enable growth without cutting your cash flow too finely.
For Asset-Heavy Industries:
- Construction, transport, or manufacturing businesses normally depend on Asset Finance Australia options to keep their business operations going smoothly and up-to-date.
How ProBiz Finance Assists You in Making the Decision
We understand that every business is unique in its requirements here at ProBiz Finance. That is why our finance professionals spend time evaluating your needs, reviewing your business model, and determining the most suitable funding option.
Whether you are considering the benefits of asset funding or looking for the best business loans, we can help you with:
- Enhancing your business credit report.
- Deciding between secured and unsecured loan options.
- Get quick approvals for working capital requirements and equipment finance.
- Review loan conditions from a reliable selection of Australian lenders.
From startups to SMES, we offer customised guidance for those seeking business loans in Australia, making sure you’re not inundated with complex financial terminology.
Tax Implications and Financial Planning
Perhaps the most overlooked factor in deciding between equipment financing and business loans is tax. Under some financial arrangements, you may be able to recover interest charges or asset depreciation as a tax deduction.
Asset financing generally offers more straight-line tax benefits, particularly if the asset is used in revenue-generating activities. Business loan interest is deductible, though, based on the purpose for which the money is being incurred.
Tip: Always consult a professional accountant to find out the full financial consequences of your choice.
Flexibility and Long-Term Impact
Selecting the correct financing isn’t just a matter of funding today’s needs — it should be integrated into your long-term plan. For instance:
- Do you expect to add locations in a few years?
- Will your asset need to be replaced in a few years?
- Would you like to maintain a healthy cash buffer?
Here, flexibility in terms of the loan, repayment cycle, and upgrade facility is a crucial consideration. At Probiz Finance, we assist you in protecting your financial needs and selecting a plan for your business growth.
Conclusion
Whether to go for a business loan vs. asset finance essentially boils down to your business plans, financial condition, and what you plan to utilise the money for. A loan can be more universal, but asset funding is a cost-effective method of enhancing your infrastructure.
No matter where your company is, access to the right funding can make all the difference.
Not sure what’s best for your business?
Contact Probiz Finance today for a complimentary consultation. We will assist you in acquiring financing for your business that matches your vision.
Disclaimer: Probiz Finance ABN 52 661 057 647 | Credit Representative Number 542838 is authorised under Australian Credit Licence No. 384704. Your full financial situation and requirements need to be considered before any offer and acceptance of a loan product