Asset finance shows resilience in tough market

What are the sector's opportunities and challenges?

Asset finance shows resilience in tough market


By Ryan Johnson

The asset finance sector is alive and well despite a challenging economic environment, according to a broker who has recently financed a variety of interesting assets.

From a Robinson helicopter to a McLaren 765LT Spyder (pictured below), Sam Roby’s asset portfolio is diverse.

However, with lenders becoming more stringent and the government reducing tax incentives for asset finance, the market is rife with challenges. 

Still, Roby (pictured above) said while some segments were “slightly stagnating”, others were “performing strongly”.

“It is important as a broker to understand which areas of the market are likely to boom based on where we are in the economic cycle,” said Roby, partner at asset finance brokerage Pure Capital.

McLaren 765LT Spyder - one of only 765 ever built worldwide

The opportunities in asset finance

In a tough mortgage and commercial property environment, investing resources in asset and equipment finance is now a matter of when, not if, for many brokers and lenders.

Major banks have cashed in on the trend, with Commonwealth Bank (CBA) posting significant growth particularly in its electric vehicle (EV) market, up 235% over the financial year

Non-banks have grown their asset offerings, with Pepper Money posting more asset finance originations ($1.8 billion) than mortgage originations ($1.7 billion) for the first time in 1H 2023.

Leading aggregators are also onboard, with Finsure partnering with ODIN Asset Finance to diversify its loan options to its broker network.

For Roby, this has meant more lending options and more competition as mortgage and commercial brokers diversify.

However, it hasn’t been all smooth sailing. Roby said there had been a “slight drop off” in in PAYG clients upgrading or changing their family vehicles, showing more caution within the current rate rising cycle.

“Especially in the current economic environment, where securing credit is challenging due to banks and lenders overarching appetite to lend, orchestrating a transaction correctly is crucial for businesses.”

Instead, Roby and the team at Pure Capital had financed other segments such as sustainability. For example, Roby had recently financed $350,000 worth of solar panels to start a solar farm.

“We are seeing a lot more civil infrastructure companies funding assets to meet the increased demands they are facing with governments spending more to stimulate the economy,” Roby said.

“Applicants buying 'tools of the trade' assets such as excavators and concrete pumps, are still transacting as strongly as ever, as they just increase their prices to cover the increase in funding costs.”

The impact of lower instant asset write-off

Another challenge in the asset finance market has been the lowering of the government’s instant asset write-off scheme.

Designed to boost cash flow for eligible small businesses in Australia, the tax write-off was significantly reduced from the $150,000 limit ending in July to the new $20,000 limit introduced in September.

Some brokers had expressed concerns that this would kill asset finance’s momentum, but Roby said it hadn’t affected things at Pure Capital.

“In the current economic climate, applicants are reaching out to us when they have a need to fill, as opposed to just looking to 'purchase' a tax deduction,” Roby said.

“The primary impact we've observed, albeit minor and influenced significantly by timing, is that stock levels for most vehicles and assets have returned to pre-COVID levels.”

“This shift has resulted in quicker lead times and more reasonable prices. Customers no longer need to overpay to acquire the assets they require.”

Where does the future lie for asset finance?

Technology has influenced the broking industry in several ways, with many brokerages now using technology-based platforms and AI to make decisions.

Roby said while this was a good thing for some consumers, such as those with simple income structures who receive payslips, it was less effective for businesses with complex structures.

Complex businesses require a deep understanding of the business and the moving parts which simply cannot be done by a computer.

“The true art of broking is in your ability to understand, structure and articulate complex businesses and their transaction requirements to a bank or third party in order to receive the desired result in a way that does not negatively impact the long-term purchasing power of the business, or their ability to be financeable,” Roby said.

“A misstep during a crucial financial deal could potentially lead to the downfall of a company.”

Roby said it was therefore “absolutely essential” to engage a broker who comprehensively understood the financial terrain and had cultivated vital relationships with the banks.

“These relationships are pivotal in ensuring the successful closure of deals and getting the more precarious deals over the line.”

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