Business Loan
Leasing
It can be confusing to figure out which type of business finance product is right for you. We have provided an outline of the choices available to you although we strongly recommend that you should discuss your situation with your accountant.
Lease products fall into two categories as either a finance lease or operating lease. They differ in the way they treat ownership, disposal and residual risk on the vehicle. Hire purchase options are available and function in a similar fashion to a loan to purchase an asset.
In order to decide on the most appropriate type of finance you first need to consider the following:
- Do you wish to own the asset at the end of the lease period?
- Do you use the asset for business purposes more than 50% of the time?
- Are you looking to finance the vehicle only, or do you also want a range of fleet management services?
- How long do you intend to keep the vehicle and how many kilometres will you travel?
- Do you want or need to show the asset on the company balance sheet?
Finance Lease
A finance lease is a contract where the lender purchases the equipment and leases to you for an agreed period and rental. A residual value or balloon is set up front to reflect the asset’s value at the end of the term. At the end of the lease term you will have the choice to obtain ownership of the equipment upon a successful offer to the financier to buy the equipment. Alternately, you may trade it in on a replacement, return it to the financier paying the difference between the residual and market value (residual risk) or even extend the lease for a further term.
Operating / Maintained Lease
In contrast to a finance lease an operating lease agreement is used to finance equipment for less than its useful life, and the lessee can return equipment to the lessor at the end of the lease period without any further obligation. An operating lease is commonly used to acquire equipment such as motor vehicles, ships or airliners on a relatively short-term basis. If your business relies on expensive equipment that goes out-of-date quickly, an operating lease can be a great option.Coming up with the capital to upgrade your equipment can be difficult. With an operating lease, rather than buying the equipment outright, you rent it for a manageable, monthly payment.It is finance not shown on the balance sheet and in one monthly payment takes care of all costs associated with an equipment, that is, all costs in relation to maintenance, insurance, finance are included.
Commercial Hire Purchase
Under a Commercial hire purchase (CHP) agreement the financier purchases the vehicle or equipment on behalf of you. They own the vehicle or equipment during the hiring period. It differs from a finance lease in that the goods automatically become yours once all terms of the agreement have been completed usually when the final instalment is paid. As such it is finance taken out by a business when they wish to purchase the goods.
A CHP can be arranged with or without a final balloon payment at the end of the term depending on what your budgetary requirements are. The repayments are fixed for the term of the CHP. An upfront deposit or trade-in, which will reduce your rental commitments, is optional. It is accounted for on the balance sheet.
Chattel Mortgage
A Chattel Mortgage is a commercial car finance product. Under a Chattel Mortgage the financier lends money to the customer to purchase a car or other motor vehicle (the “chattel”), and the customer makes regular repayments.
Similar arrangement to a hire purchase but with specific GST benefits, which in certain circumstances will allow the entire GST proportion, be claimed in the first BAS period after purchase. Loan structure can be tailored in a similar fashion to a CHP or finance lease
Novated Loans (Salary Packaging )
A novated lease is a type of motor vehicle lease that allows a business to lease a motor vehicle on behalf of an employee, with the responsibility for the lease lying with the employee and the lease payments being made from the employee’s pre-tax income and the employer agrees to take on the repayment responsibilities for the duration of the employee’s employment. It is not recorded on the balance sheet of the employer. If the employee leaves this employer, the lease may be transferable to a new employer or the employee can take on the responsibility of the repayments. The original employer no longer has any financial responsibility and is not left with a vehicle they do not require.
The benefit to the employee may be the reduction of tax as a result of having the repayments made out of pre-tax dollars. There may be fringe benefits tax consequences (based on the vehicle value and kilometres travelled) as a result of the transaction between the employee and the employer, so advice from your tax professional is recommended. Similar to a finance lease, residual risk rests with the employee.
Debtor Finance
Debtor Finance is a way to finance small and growing businesses that need working capital by financing its invoices. This financing product allows you to maximise your cash flow, which is a key factor in the success of any business. Unlike traditional lending products, this solution allows you to finance slow-paying invoices, which provides immediate funds to pay for company expenses.
The two most common forms of debtor financing are invoice factoring which is used by small companies and invoice discounting which is used by larger companies. Even though they both work differently and offer different features both solutions solve the same problem and provide similar benefits.
By borrowing against the outstanding value of your trade debtors you won’t miss out on business opportunities that you otherwise may have which can help you achieve your business goals and targets.
You might use this type of product if your business sells goods or services on credit terms and consequently has restricted liquidity, or if your business is expanding or if your business activity is affected by seasonal trends.
Contact us to discuss ways to increase your business cash flow needs.
Bank Overdraft
Small businesses and companies use a bank overdraft to help them manage their cash flow. We can arrange an overdraft facility that allows you to write cheques and withdraw money from current account.
There is an approved overdraft limit set up and is considered a short term loan. It is also known as a standby credit facility and is reviewed yearly. A variable rate is usually charged for this service and you only have to pay interest on the amount that you have used. However an annual bank fee may apply for the use of this service.
Contact us for a discussion about your business financial needs. We will would like to assist you to determine if this type of facility is a suitable option for you, and if so, to coordinate the entire process for you.
You might use this type of product if your business sells goods or services on credit terms and consequently has restricted liquidity, or if your business is expanding or if your business activity is affected by seasonal trends.
Contact us to discuss ways to increase your business cash flow needs.
Business Line Of Credit
The Business Line of Credit provides a flexible form of finance that can be a vital tool for many businesses. It is a revolving credit facility commonly used for short-term working capital and occasional business requirements.
t functions in much the same way as a residential line of credit does, allowing the principal to be repaid and redrawn at any time up to your approved credit limit. Many forms of security may be accepted including residential, commercial or rural property, business assets or a combination of these.
Contact us for advice in determining if a Business Line of Credit would be suitable for you, and we will assist you with the entire process.
Contact us today to talk about your business leasing or finance needs.
Regardless of whether you are starting up a new business, or whether you would like to expand your business making the right choice for business funding can make all the difference in the success of your business venture.
