Our CFO Greg Taylor blogs about how commercial financial can be a fast flexible way to get immediate use of equipment in your business.
Commercial finance can be a fast, flexible way to get immediate use of equipment such as cars, trucks, plant or computers while conserving cash (working capital) for business development and other business running costs. There are three main options to choose from.
Commercial Hire Purchase is generally used where you want to own the equipment at the end of the term and where you account for GST on an accrual basis. Ownership automatically transfers to you upon final payment.
A Chattel Mortgage is generally used when it is important for you to own the equipment during and at the end of term and if you account for GST on a cash basis. You own the equipment at purchase and the financier takes a charge over the equipment.
With both options, you make fixed, regular payments over an agreed term. At the start of the term you and the financier agree on the residual or balloon value; a payment required at the end of the term. The balloon can be zero. The interest component of the rentals and the depreciation on the equipment may be tax-deductible, provided the equipment is used to generate assessable income.
If you are financing high depreciating equipment or equipment that becomes obsolete quickly such as computers and office equipment then Rental Finance may be an option. Here you use the equipment for an agreed period while making rental payments structured to suit your business cash flow. Unlike the first two options, you have flexibility to vary the term. At the end of the lease you simply return the equipment with no disposal costs. If the financier agrees, you can re-lease or purchase the equipment. You may be able to claim tax deductions on payments and stamp duty.
These finance options can help you to keep pace with the latest technology while conserving your cash. Always seek expert advice on the right option for your business.
This blog also appeared as a Business Finance Column in the Newcastle Post newspaper on November 7.