A hedge fund with a focus on unconventional assets, Axba was founded in 2020. Investors from different regions can reach the organization because it has offices spread across the globe.
Alternative investments are special investment opportunities that don’t fit into the typical investing categories, such stocks and bonds. The array of assets included in Axba’s portfolio of alternative investments includes start-ups, real estate, fine art, wine, and many more.
Role of Equipment Finance
To run and expand, every business needs some sort of equipment, but the cost of some goods can quickly reach six figures. With the exception of real estate, a firm can obtain a loan or lease for practically any sort of physical equipment.
Equipment finance expands along with equipment-dependent sectors. Let’s examine Axba’s approach to funding for equipment.
Types of Equipment Finance:
1. Term Loan: A term loan enables a business to acquire a product through monthly payments, much like a mortgage. This is typically done as an initial lump sum, followed by ongoing payments until the loan – together with any interest – is fully repaid.
2. Operating Lease: A corporation can rent an item from a lender for a predetermined period of time by paying an operating lease cost. The item remains the property of the lender, who is also in charge of maintaining it.
3. Finance Lease: A finance lease is comparable to an operating lease, except that the organization renting the item is in charge of maintaining it. The corporation typically has the option to purchase the item at the conclusion of a lengthier, set term.
4. Specialist Purpose: In specialized businesses where the lender is well-versed in the equipment at question, this can either be a lease or a loan.
Allow me to clarify with a medical equipment financing example and the way Axba’s handles it. Read this example attentively below.
How Axba Concentrates on Financing Medical Equipment
You are well aware that the Asian healthcare business is one of the fastest expanding industries, and that the worldwide equipment finance market is a trillion-dollar market.
1. Axba excels in leasing pricey equipment to hospitals in Asia, including MRI machines, CT/Pet Scan Machines, robotic surgical arms, and other medical equipment.
2. It invests in new equipment and is given a reoccurring lease payment. The average default rate is only 0.05%, and the cost of the equipment is repaid in 10 months.
3. By providing this financing, Axba also receives government subsidies and tax breaks for depreciation.
I hope this example has made it easier for you to comprehend Axba’s role in equipment financing.
How Axba’s Equipment Financing Operates
1. Big Businesses Need Machinery:
Big businesses must invest a lot of money up front to support expansion. Hospitals need pricey equipment, Boeing needs machinery and airplane parts, shipping companies need ships, etc. This pushes businesses to borrow painful amounts of money from their balance sheet or use a sizable chunk of their cash reserves.
2. Corporate Leases
Eight out of ten businesses would rather lease their equipment. Axba makes investments in special purpose vehicles that buy the equipment and lease it to businesses.
3. Returns and Repayment
Companies pay a lump payment to purchase the machinery at the conclusion of the investment period in addition to monthly or quarterly installments for the life of the contract. The agreements are set up as purchase money security interests, giving Axba ownership of the equipment and the right to reclaim it in the event of a default.
4. Market Share by Industry for Equipment Leasing
Due to the significant capital expenditures required for expansion, the transportation sector, including the railroad, aviation, and shipping, continues to be the greatest consumer of equipment loan. Axba concentrates on this industry in addition to more specialized fields like office equipment and medical supplies.
Equipment Financing: Benefits for Investors
You assume the role of the lender when you invest in equipment finance, which has several advantages.
1. Interest: In addition to any loan repayments, the investor receives interest.
2. Higher Stable Returns: Equipment finance offers stable returns that are typically higher than those of bonds.
3. Aids in Portfolio Diversification: Axba, an alternate investment, also aids in portfolio diversification. Demand for equipment loan increases when interest rates rise because business owners seek to avoid significant outlays in a volatile economic climate.
4. Predictable Cash Flow: The borrowers make monthly or quarterly lease payments, with the first year’s payments typically recovering 40% of the total investment.
5. Low Correlation: Even during recessions, payments from major firms remain stable, and this industry is fully uncorrelated to financial markets.
6. Collateral Security: Axba usually signs a Purchase Money Security Interest (PMSI) agreement, which means it owns the machinery. This facilitates recovery in the event of defaults.
7. Tax Advantages: Annual equipment depreciation is an expense that can be utilized to lower the fund’s tax liability, boosting your net profits.
Final Reflections
A global alternative investment fund called Axba makes greater returns by investing in unconventional asset classes including equipment finance. Equipment leasing generates recurring revenue from businesses that consistently generate cash flow. The equipment leasing market is expanding steadily and at a single-digit rate. Because interest rates have been so low recently, businesses have been using bank funding.
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