Various equipment finance options
Choices about for the savvy business owner when it comes to finance; you do need to look at the options available.
Once you’ve assessed your needs and you know where to go, you should investigate which finance products suit your needs. When weighing up your options analyze the potential costs, interest payments and any hidden charges or terms. Each option will have different tax and GST implications, so it’s wise to discuss your options with a business or finance broker or accountant. There are a variety of loans available to business that suits various situations. They can vary in the amount, loan term (the period in which the loan needs to be repaid), interest rate, interest rate type (i.e. fixed or variable), fees and security. It’s best to check the product disclosure information carefully before you apply, regardless of which product you choose.
One of the most popular forms of business equipment finance is commercial hire purchase which is a finance loan where you hire business equipment, a car, truck or other vehicle for a fixed monthly repayment over an agreed period. It’s also called a term purchase, offer to hire, hire purchase, asset purchase, CHP or HP.
The process of financing here is that the finance broker, such as Zenith Finance, purchases the equipment or vehicle on your behalf. Then we hire it out to you over a contracted time frame. During this period, we still own the vehicle or equipment. When your contract term is finished and you’ve paid in full, you own the equipment or vehicle. This offers several distinct benefits including:
- Deposit option – if it suits, you can start your contract with a big payment
- Balloon payment on residual – you can make a large final payment at the end
- Flexibility – payments can be structured monthly, quarterly, half-yearly and yearly
- Short or long term contracts – from 1 to 5 years (or longer for amounts over $200,000)
- Easy budgeting – your repayments are fixed throughout so you always know what you’re up for
- Option to buy anytime – you can purchase the equipment/vehicle during the term of your loan
- Tax advantages – deductions available when used for business, and on depreciation
- Pay less GST – not charged on your monthly repayments or residual payment
- Claim on GST – for the equipment/vehicle cost if you are registered
When finance is required for a vehicle purchase you have choices from:
- Commercial hire purchase
- Chattel Mortgage
- Finance lease
In a finance lease we issue rental agreement where we purchase the business equipment or vehicle for you. Then you rent it from us at fixed monthly repayment over an agreed period. You might have also heard it called a lease or equipment lease.
We purchase the equipment or vehicle on your behalf. Then we hire it out to you over a contracted time frame.
You can’t purchase the equipment during the contract and at the end of the lease period we own it. However, if you are interested in purchasing the equipment after your contract is finished, we can talk to you about this.
Finance leases suits cars, trucks and other motor vehicles as well as industrial equipment and earthmoving equipment. The benefits if this finance class include:
- You keep your capital – we pay 100% for the equipment so you don’t tie up your funds.
- Lower interest rates – as the equipment is secured by mortgage.
- Less risk – because you don’t fork out a huge payment to buy the equipment.
- Short or long term contracts – from 1 to 5 years.
- Easy budgeting – fixed rental and interest so you always know what you’re up for.
- Lower monthly payment option – by making a large final payment (balloon) at the end.
- Tax advantages – deductions available when used for business.
- We pay GST – so you’re monthly payments are lower
Note however that leasing is a different concept to renting because leasing offers less flexibility and requires a longer minimum term. Unlike renting, equipment that you lease sits on your balance sheet and may affect your equity ratio, which is a part of what the bank looks at when it considers you for a loan.