Author: rdelavictoria

Having the right vehicles and equipment is vital to the success and longevity of any business, helping to maximise efficiency and productivity while maintaining a competitive edge.

However, funding the up-front purchase of expensive cars, trucks and other equipment is not always feasible. That’s why specialised finance for such assets is so popular. It enables businesses to put their new acquisitions to work immediately without draining their cash reserves or incurring the high interest rates of other credit options.

Below, we explore three of the most popular forms of business financing for capital assets.

Commercial Finance Agreements

Commercial Finance Agreements, also known as chattel mortgages, are a fast, flexible way to take ownership of assets such as cars, trucks, trailers, and other construction and earthmoving equipment.

A lender provides the funds to purchase the vehicle or equipment, and the borrower takes ownership at the time of purchase. The lender uses the asset financed as security, so interest rates on commercial financial agreements are usually significantly lower than those of unsecured facilities such as cash flow-based loans.

A range of terms are available, so repayments can be structured to suit each business’s unique needs. They are typically paid over 2 to 5 years, and can be set at a regular monthly amount, or customised to fit your unique cash flow requirements. A larger one-off balloon payment can also be set at the end of the term to help lower the regular instalment.

With a Commercial Finance Agreement, the lender pays the goods and services tax (GST) as part of the purchase cost, whereas the business which owns it is entitled to claim an input tax credit up front. The business can also claim interest and depreciation costs, depending on the extent to which the asset is used for business purposes.

Finance Leases

Finance Leases provide businesses with use cars and other vehicles, and equipment without taking ownership of them. In this form of business financing, a leasing company (referred to in legal terms as the lessor) buys the asset and gives the use of it to a business or person (the lessee) in return for regular payments.

Finance Leases typically run for 2 to 5 years and are widely used for vehicle finance. They are particularly suitable for businesses that use their vehicles primarily for business-related purposes and turn them over regularly, such as vehicle fleet companies.

Unlike a car loan, when a Finance Lease comes to an end, businesses may be presented with a range of options including renewing the lease, choosing to purchase it outright by making a final payment, or trading it in for a new model and continuing with a new lease agreement.

There are no annual or account-keeping fees associated with this finance option. Lease repayments for business vehicles are generally 100% tax deductible, GST on lease payments may be able to be claimed*, and it may be possible to make lease payments in advance for tax deduction purposes.

Novated Leases

Another alternative to a car loan is a Novated Lease, which instead of leasing vehicles to the business owner, enables employees to finance a new or used car by paying for it out of their pre-tax income. This is a tax-efficient form of salary packaging known as salary sacrificing.

This form of vehicle finance usually runs for 1 – 5 years, and is based on a three-way agreement whereby an employer agrees to make car lease payments to the finance company by deducting them from an employee’s salary. The vehicle may be used as part of a business arrangement, or it could be entirely for personal use.

For the employee, a Novated Lease can be a cost-effective way to secure the use of a car, not only because of the income tax savings but it can also include running costs such as fuel, servicing, registration, and car insurance in the repayments deducted from their pre-tax salary.

For the employer, it’s a low-risk way to help attract, retain and reward valued team members without the business having to take on new liabilities or manage a vehicle fleet. If the employee quits, the responsibility for making alternative arrangements with the finance company lies with the employee.

To learn more about the asset finance options available to your business, speak to an accredited Metro Finance broker today.

*Before making any investment decision, consider consulting your accountant or seeking independent financial advice.

Cash flow is the lifeblood of any business. It’s essential for day-to-day operations, and the key to long-term growth. So when investing in new assets, it makes sense for businesses to choose finance solutions that can minimise disruptions to their cash flow.

Rather than tying up large amounts of capital by paying cash up front for big-ticket items, businesses can instead use facilities such as commercial finance agreements and leases to secure the use of the vehicles and equipment they need, preserving their liquidity to meet expenses or take advantage of new opportunities as they arise.

Asset finance is also a great solution for businesses that have the potential to grow but don’t have enough cash on hand to fund an expansion. It allows them to take possession of new income-producing assets and put them to use generating returns immediately.
This form of business financing may also open the door to higher-quality equipment than a business can’t afford to pay cash for. Therefore avoiding the need to compromise on important features and enabling businesses to upgrade their assets to the latest models and technology more frequently.

Repayments are made over an extended period (typically 1 – 5 years), which more accurately reflects the useful life of the asset, instead of a lump-sum payment up front. Instalments can be fixed at the same monthly amount or can be structured to fit each business’s unique cash flow requirements, while a balloon payment can be set at the end of the term to lower regular monthly outgoings. Plus, repayments are usually partially or entirely tax-deductible.

One example of the finance solutions businesses can use to quickly take ownership of cars, trucks and other equipment and get moving without big cash outflows is a Commercial Finance Agreement. Also known as a chattel mortgage, this is a form of lending that can be used to acquire passenger and commercial vehicles, whether new or used and from a dealer or through private sale, as well as construction, earthmoving or other equipment.

An alternative to Commercial Finance Agreements is a Finance Lease. In this case, a finance company purchases and remains the legal owner of an asset, and then effectively rents it to a business for a regular payment over an agreed period.

At the end of the agreed lease period, there may be a wide range of options available to the business leasing the vehicle or other asset: they may choose to refinance it for another term, to take ownership (after paying any residual value) or to replace it with a new leased vehicle.

To learn more about the asset finance options available to your business, speak to an accredited Metro Finance broker today. Before making any investment decision, consider consulting to your accountant or seeking independent financial advice.