In his weekly business banking post our CFO Greg Taylor looks at where commercial finance can help businesses.
With interest rates falling and the end of the financial year approaching it is a good time to review financing.
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.
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.
If you are financing high depreciating equipment or equipment that becomes obsolete quickly then leasing or renting may be options. Here you use the equipment for an agreed period while making payments structured to suit your business cash flow. You have flexibility to vary the term. At the end of the term you simply return the equipment with no disposal costs. If the financier agrees, you can re-finance or purchase the equipment.
With both options the asset is off the balance sheet. You may be able to claim tax deductions on payments and stamp duty.
According to the experts at Centrepoint, the availability of leasing, rental and HP finance has increased significantly compared to a few years ago. Interest rates for motor vehicles, trucks and construction equipment are particularly attractive at the moment, at around home loan rates. Finance for solar panels is also attractive.
For businesses that already own relatively new (under two years) plant, equipment and vehicles you may want to consider a ‘sale and leaseback’ to access debt funds at these competitive rates. You “sell” the asset for its second hand value to the leasing company and immediately lease it back again, so retaining use of the asset but freeing up the capital tied up in that asset.
Of course your accountant or business banker can advise on the best option for your specific needs.
This column is based on Greg's weekly post in the Newcastle and Lake Macquarie Post.