Motor Vehicle, Business Equipment and Machinery Finance
There are a number of different options to consider when financing a motor vehicle or business equipment and machinery, for which the most common used are;
Chattel Mortgage
The facility is a commercial finance product where the Lender assists a borrower to take ownership of an asset (motor vehicle, business equipment or machinery) and takes a mortgage over the asset.
GST is paid on the purchase price of the asset and the borrower, if registered for GST, can claim this payment back when they lodge their next BAS. If the vehicle is used for business purposes the finance and depreciation of the asset are generally both tax deductible.
Novated Lease
The Novated Lease is a method of salary packaging a motor vehicle.
The employee leases the vehicle and the employer pays the monthly lease payments to the Lender from the employee’s pre-tax income (in other words, salary sacrificing this income). The GST paid can be claimed back by the employer who then passes the benefit on to the employee.
Finance Lease
The Finance Lease is where the Lender owns the asset (motor vehicle, business equipment or machinery) on behalf of the borrower and leases the asset back to the borrower over a fixed term.
There is a balloon/residual option for the borrower to purchase the asset at the end of the term. GST is paid on the monthly lease payments and the balloon/residual. The borrower, if registered for GST, can claim this payment back progressively over the term of the facility. Generally, the monthly lease payments are tax deductible.
Tips when considering asset finance
It is so important when considering different lender options that you compare apples with apples:
Loan Term – How many years is the loan term? You cannot accurately compare two lender quotes if different terms are quoted.
Amount – How much is being borrowed to purchase your vehicle? Does the finance include any capitalised fees? Are the repayments to be made in advance, or in arrears?
Balloon or Residual – A balloon (also called a residual) is a lump sum figure to be paid at the end of the loan term. The larger the balloon, the less the monthly repayments, so it’s important to ensure the different lender quotes offer the same balloon figure.
Often, to quote the lowest repayment possible, car dealerships may quote based on a larger balloon, which may result in a situation called negative equity. Negative equity means at the time your loan term is completed and your balloon payment becomes due, the value of the vehicle is lower than the balloon owing. This may mean you would need to contribute additional cash from your own savings to clear the loan balance if you sell or upgrade the car.
Once you are ready to consider buying a Vehicle, Equipment or Machinery for business purposes, our recommended process is:
- Obtain a Pre-Approval;
- Research the market for the most competitive quote, ensuring the loan terms meet your needs;
- Then confidently negotiate the purchase of the Asset with the dealer/ supplier.
If you require any finance for your business Crosbie Finance can help with any of your needs.