Now is the time to talk to your accountant and broker.
- Get your finances arranged with your overall tax planning
- Get the structure that matches your cash flow
- Get the best deal from a range of lenders
- Keep your equipment separate from your mortgage finance so your existing lender does not tie them together
- Keep the fuss to a minimum
Almost every business has, or should have, some type of equipment finance. It may be as simple as the car that you use to run around town with, all the way through to manufacturing and transport equipment.
Ask yourself these basic questions:
- Is the asset being purchased used wholly or mainly for business purposes?
- Is the asset used in your business to assist management, or to make a profit?
- Is the asset moveable?
- Does the asset have a serial number?
- Is it an ‘off the shelf’ asset that has a ready resale market?
If you answered yes to these simple questions then generally the asset you are buying can be financed by the group of finance products called ‘equipment finance’.
These products have several names – finance lease, operating lease, novated lease, asset purchase, chattel mortgage, single secured asset, hire purchase. Each of these products are treated slightly differently for taxation purposes so it is important to ensure that your accountant is involved in selecting the product.
Then, once the product is selected, you need to move onto structuring the facility. Equipment finance products are very flexible on how they can be structured: the payments can be set up in a myriad of ways to match your cash flow. However, the facility then also has to match to your taxation planning to maximise the deductions that you can achieve.
So now we have selected the right product for you, we have developed the right structure for you. All of this involves getting your accountant’s advice, and maybe your financial planner’s as well.
Now it’s time to get the best deal. You may think that going to your bank will get you the best deal. While sometimes this is right, often your own bank will tie the facility to your real estate security.
What this means is that today they may lend you 100% to buy that new car, but tomorrow when you ask for an increase to your overdraft they will then only allow 25% to 30% for the car – and if you just purchased a new Toyota Land cruiser that change may take $70,000 or so off your available security.
At Regional Finance Solutions we normally recommend that you keep your equipment finance and your main banking separate to stop this happening.
We have access to a number of lenders and can quickly check the market to get you the best deal we can.
For simple assets like cars, small trucks, forklifts and so on, if you have equity in a property, or have a 20% to 30% deposit we don’t even need to get your tax records; many lenders are willing to rely on the fact that you own real estate or have a substantial deposit as demonstrating that you can afford what you are looking to purchase and approve it on that basis.
So, the next time you are thinking of buying a car or an item of equipment for your business remember to give us and your accountant a call. We will work together to get you a deal that fits your taxation planning, your financial planning, that is correctly structured, does not interfere with your main banking affairs, and the best deal that there is out there.
And remember that in doing all that we don’t charge you for our service, the lender will pay us for your business.
The final thing. No matter how beautiful that car is, never sign up for dealer finance! Call us and we can arrange pre-approved finance for you, based off all of the advice above. You will be much better off.
About the author: David Traynor has been in the finance industry since 1982, is a member FBAA and MFAA, plus the Commercial Asset Finance Brokers Association (CAFBA), David holds a Diploma in Finance and Mortgage Broking Management and has been awarded as a Fellow of Finance by FINSIA.
David established Regional Finance Solutions in 2013 when he became aware of the banks continued removal of traditional bank branch based lenders. Regional Finance Solutions currently has 17 brokers spread across the North Coast, New England and North West. Banking roles for David have been extensive and have included roles in branches through to executive management roles.