Business Loan Options16 August 2018
Does your landscaping business need a new forklift? How is the fryer holding up in your mobile food truck? Would a delivery van make your dry cleaning company more efficient?
Most employers consider taking out loans on key equipment and vehicles at some point during the life cycle of their ownership. Whether an expanding operation or a home based effort, borrowing money is essential for most businesses to grow. Lenders have various offerings for keeping your particular company on track. Depending on your personal needs, options for flexible payment plans and tax savings are possible for most business loans. Most are customisable to your level of need and income.
Taking advantage of low interest rates and historic savings means choosing the best loan option for the next 5 years.
Business loans can be used for most any type of advance related to expenses. Most loans exist to free up cash flow for day to day business and keep the company earning. Operational needs are immediate and quick approval is necessary to finish jobs on time. Most loans can be acquired without a hefty down payment. Loans are secured against the equipment or property itself. You’ll need to determine how much money to borrow based on the interest rate and line of credit. Naturally the larger the credit line the more interest you’ll be responsible for. Smaller companies generally want to lock in fixed rates where possible. With variable rates the risk of a rising interest adds too much to the overall loan. With specific equipment or vehicle loans the best options are Chattel Mortgage and Hire Purchase contracts.
A Chattel Mortgage is a loan on ‘movable’ equipment like cars or machinery. One benefit with the Chattel Mortgage is the ability to claim a tax deduction on the items covered as long as they are used for business. They are generally subject to lower rates as well since the loan is secured by the equipment or vehicle. Also, most loans are flexible and can be used for cash purposes when your business needs short term funds. Balloon payments, where the bulk is paid at the end of the loan, are possible in most cases as well. Borrowers also have the option to contribute additional payments from other sources of income to the balance. Fees associated with using the Chattel Mortgage option can be slightly larger than that of the Hire Purchase. Also, businesses registered for GST can claim the GST price on the vehicle in their next BAS (Business Activity Statement).
With a Hire Purchase (CHP) the lender buys the vehicle and loans it to individuals or businesses. The car or truck has be used primarily for business though. Hire Purchases can be used for tax credits if the lender is registered for GST. Just like the Chattel Mortgage, agreements can be structured in such a way as to maximize cash flow. Most contracts are 24 to 60 months and balloon payments are also an option. Payment plans are set up during the signing of the contract so you know exactly how much to pay each month. Balloon payments come with lower monthly rates but include higher interest. Still, if additional equipment is needed quickly but don’t have the money upfront, balloon payments might be the best option.
Projects are often stalled by poor functioning equipment and stalled credit applications. Business loans are a lifeline to help complete ongoing work and carry the project forward. The equipment bought with loans is owned once the balance is complete no matter which particular financing option you choose. As long as equipment and vehicles are maintained they will extend far beyond the life of the loan. Which makes the loan an investment of sorts.
The flexibility in borrowing allows businesses to choose the best option for their earnings life cycle. Contact us for more information on how our business and equipment loans can assist you and your business.