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————-Business Finance Services Australia |
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—Equipment Finance: Choosing the Right Loan Facility |
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Vehicle, Plant & Equipment Finance
Chattel Mortgage: Chattel Mortgage is a fixed rate loan for the purchase of business equipment. It is also known by some lenders as a commercial loan. The equipment belongs to the client and the lenders secures its loan by a charge/bill of sale over the equipment. In contrast to a CHP contract, under a Chattel Mortgage the GST on the purchase can be claimed on your next BAS claim. The advantages of a Chattel Mortgage are: * You own the equipment through the term of the agreement. * You can finance 100% of the cost price of the goods. * You can claim the interest paid and depreciation on the financed equipment as long as the goods are for business use * There is no GST added to your repayments * No set residual/balloon although this can be added if required to better match repayments to cashflow * Loan term can be 12 to 60 months (can vary between lenders)
Commercial Hire Purchase: A Commercial Hire Purchase (CHP) agreement is a contract to purchase equipment on a set term with a fixed rate. Ownership of the equipment is transferred once the final payment has been made. Security for the loan is the equipment financed. With each repayment you are increasing your equity in the equipment. CHP is ideal for a business that wants full ownership at the end of the term. Advantages of a CHP are: * Freedom to reduce the amount financed using a deposit, or you can finance 100% of asset cost. * Option to structure the transaction with a balloon or fully amortise the finance over the loan term * Tax benefit through interest paid and depreciation on the equipment. * There is no GST added to your repayments * No set residual/balloon although this can be added if required to better match repayments to cashflow * Loan term can be 12 to 60 months (can vary between lenders)
Finance Lease: A Finance Lease requires the lessee to finance 100% of the asset cost, i.e. a deposit cannot be utilised to reduce the amount financed. A residual value, which is payable at the end of the term, must be established. Residual values are determined by the Australian Tax Office and are based on the depreciation value of the asset. The goods are effectively owned by the lender and rented to the borrower. The lender will normally offer to sell the equipment to the borrower at the end of term for the amount of the residual value. The lender, as the owner of the goods claims depreciation of the goods as a tax deduction. Additionally, the lender claims the GST component of the price. The funder thus finances the price net of GST. As finance leases are not loans, GST is payable on the monthly payments. The advantages of a Finance Lease are: * No initial cash outlay as 100% of the purchase price is financed * Rental payments are fully tax deductible. * Terms of 12 to 60 months * Off-balance sheet finance arrangement. * Ability to upgrade goods at or before contract expiry and renegotiate terms. * End of term options include purchase, re-rent, return of goods
Operating Lease: Also known as rental, the lender owns the equipment and rents it to the borrower for an agreed monthly payment. The lender calculates the payment which include a future value residual which is not disclosed to the borrower. At the end of term there are a number of options including returning the goods, offering to purchase the goods or re-renting for a further agreed term. The lender assumes the risk of re-sale. The advantages of operating lease/rentals are:
* Off-Balance Sheet Funding Benefits: ————-Rental agreement will not usually appear on the borrowers balance sheet as a liability. The monthly rentals are treated as an operating expense and —————are usually considered 100% tax deductible. * Manage Your Working Capital More Effectively ————-Rental gives you the option to obtain new equipment without tying up your working capital. Rental payments are fixed for the term of the facility. — ————-Terms can be 24 to 60 months but can vary between lenders and also on the equipment type * Flexible End of Term Options. At the end of the rental term the lessee will have three alternatives: ————-1. upgrade or replace with new equipment; * Finance the Total Cost ————-The cost of hardware, software, maintenance, cabling, training, other services and asset management may be bundled into the one facility.
Novated Lease The advent of Salary Packaging has seen Novated Leases come to the fore as employees seek to move away from the "approved" vehicles defined in their employer's company car policy. Generally, a Novated Lease is one where the employee takes out a Finance Lease with the financier for the vehicle of their choice. The employee, their employer and the financier then enter into a tri-partite Novation Agreement whereby the employer makes the lease payments, including, if required, any costs associated with the vehicle's operating costs, until such time as the end of the lease term is reached or the employee's employment ceases. If employment ceases during the lease term, the novation is cancelled and the employer's obligation in respect of making the lease payments ceases and reverts to the employee. Novated leases provide significant benefits to both the employee and the employer. ——Employer Benefits: * A more flexible approach toward the make and model of vehicles available to staff makes recruitment and retention of skilled staff easier. * The actual lease is with the employee and so the employer has no risk. * Should the employee's employment contract be broken, voluntarily or otherwise, the employer has no obligation to continue making lease payments or ———to pay out the vehicle lease. The vehicle goes with the employee. * Novated Lease payments are fully tax deductible and Novated Leases are off balance sheet and therefore have no impact on performance ratios or ———gearing. * One standard monthly payment covers the finance aspects of the lease. As this monthly payment can be financed by a standing payroll deduction the ———employer's salary administration costs should be minimal. * Time and costs associated with management and disposal of the vehicle are not the employer's responsibility.
——Employee Benefits: * The employee has significantly greater flexibility in the choice of which vehicle they drive and can choose the car that he/she wants without being ———constrained by the employer's company car policy. * Novated Lease payments are made from gross salary (i.e pre-tax), resulting in lower taxation and higher disposable income. * The equity that the employee has built up in the vehicle over the term of the lease may provide the employee with a significant tax free benefit at the ———end of the lease term. * The employee can retain the same vehicle in the eventuality that he/she changes employer by, subject to credit clearance, re-novating the lease to the ———new employer. * Lease Payments, including all running costs are paid by the employer on the employee's behalf. * More than one vehicle may be leased with employer consent.
Consumer Mortgage This is a consumer Loan for non-business use and generally used for the funding of motor vehicle purchases * Terms of 12 to 60 months * Monthly repayments normally commence one month after settlement. * Can include a balloon payment at end of contract. * Goods are owned by the borrower and the lender secures its loan by taking a mortgage/bill of sale over the equipment
————The above information is a guide only. You should seek independent professional advice in regards to which product is best suited to your individual needs. ——–—————————————-————————————————————————————————————————————————
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Contact us:——Business Finance Services Australia |
