Equipment Finance is an important option for most businesses. It provides the opportunity to finance key income producing assets without interfering with working capital or tying up additional assets as security. It needs to be structured correctly to achieve the best results for your business.
Which Equipment Finance Product provides you with the best outcome?
When selecting the best options for you we focus on:
- Making sure you don’t need to make deposits and can finance 100% of the purchase price.
- Ensuring finance isn’t linked to additional security.
- Finance which doesn’t interfere with your working capital finance.
- Avoiding hidden fees and charges.
- Finance payments matched to your cashflow needs.
- Making sure you own the goods at the end of the finance term.
Chattel Mortgage
A Chattel Mortgage allows a business to purchase equipment with finance, where the equipment itself serves as security. Chattel Mortgages are the current rendition of a Commercial Hire Purchase.
How it works: The business owns the equipment from the start, the lender holds a security interest over the equipment until the finance is repaid. Payments are made in fixed monthly instalments over a specified period.
- Ownership: The business owns the asset and also receives the GST input tax credit.
- Tax Deductions: Interest and depreciation may be tax-deductible.
- Flexibility: 100% of the value can be financed. Deposits can be paid and residuals can be added to reduce the monthly payments. Payments can be structured to suit your cash flow.
Operating Lease / Rental
An Operating Lease, otherwise known as a Rental, provides a business with use of the equipment for the term of the agreement, however they never own it.
How it works: The financier owns the equipment throughout the term and the business then enters into a hire agreement for the equipment from the financier for a fixed term. At the end of the finance term the financier owns the equipment, not the customer. The customer is obliged to return the equipment to the financier at the end of term however can negotiate to purchase the equipment or continue renting.
This product is mainly utilised by Public and Government Entities to get around Capex requirements and banking covenants.
- Ownership: The business doesn’t own the asset and doesn’t receive the GST input tax credit for the purchase price. GST is applied to the monthly payments for which the business receives the input tax credit.
- Tax Deductions: Lease payments are typically tax-deductible.
- Flexibility: Operating Leases should be entered into cautiously. In particular, be aware of the end of term costs if the business plans to continue to lease or own the equipment at the end of term.
Novated Lease
A Novated Lease is used primarily for employees to be able to salary sacrifice the cost of owning a vehicle. It involves an agreement between the employer, employee, and financier.
How it works: The employee enters into a finance lease agreement for the purchase of the vehicle. The finance lease is novated to the employer who arranges to pay the finance repayments, operating costs and FBT as part of the employee’s salary package. At the end of the lease, the employee pays the residual to own the vehicle.
- Tax Savings: Employees can benefit from pre-tax salary packaging of the vehicle to provide a better tax outcome for them.
- Employer Benefits: Employers can, at no cost to the Employer, offer a tax effective benefit to employees.
- Employee Choice: Employees typically have more flexibility in what vehicle they choose. There are however limitations placed on the residual values by the ATO.
Conclusion
Choosing the right equipment finance product depends on the specific needs of the business. Whether it is owning equipment with a Chattel Mortgage, renting through an Operating Lease or benefiting from a Novated Lease for employees. Each option offers unique advantages. Understanding these products helps businesses make informed decisions to secure the equipment they need for growth and success.
We are here to support your business.
Please speak to us about all things finance. Whether it be Equipment and Automotive Finance, Working Capital Finance which includes Debtor and Trade Finance, Property Finance including Construction Finance, Insurance Premium Funding. And yes, we also do Home Loan Finance.
We know that banks are becoming more selective and treating business customers worse than ever – please make us your first point of contact every time – we will get you a better outcome with a far better experience.
Please feel free to call us to chat about any of the above or get in touch via email:
Andrew Sutherland
0407 746 474
andrew.sutherland@halidonhill.com.au
