When you’re in business, you want to feel positive that you’re making all the right decisions. Every business wants to succeed and get every advantage they can. Businesses of all types, whether they’re in mining or retail, startup or veteran, usually don’t have enough capital to purchase all the equipment they need outright.
Construction businesses starting off may not have the million plus dollars to buy a crane or franna, nor do service businesses have money to splash out on all new point of sales systems. Chances are you have to take out some sort of equipment finance. How do you make the right choice? We break it down for you.
Equipment chattel mortgage
Also simply put as an “equipment loan,” an equipment chattel mortgage works much in the same way as a home mortgage. A financier lends you money to buy an asset. A mortgage is placed on that asset as security. Once you pay off the loan, the mortgage is lifted. Chattel mortgages are perfect for businesses that want to preserve their cash flow as it requires no capital outlay. They can also take advantage of tax deductions on purchases and claim back the GST on their BAS. You can also claim back other expenses such as depreciation and interest on payments.
Equipment hire purchase
A hire purchase is similar to a chattel mortgage apart from one major difference. In this case, the financier owns the property and ownership passes to the business once the loan is paid off. The business effectively “hires” the equipment from the financier. Like a chattel mortgage, you can take advantage of tax deductions on depreciation and interest payments.
Equipment finance lease
Leases are great for businesses who don’t want to spend their own capital and require replacement of equipment regularly, such as IT or computer equipment. Leasing has many great tax benefits like loans, as you can claim depreciation and interest on payments too. Leases usually have residual value payments structured into them to keep regular repayments as low as possible. At the end of the lease you simply hand the equipment back, opt to buy the equipment by paying the residual or start a new lease with new equipment.
Equipment operating lease
An operating lease is another flexible option for business that absolutely needs to keep their equipment current or even expand their equipment as their business grows. Some operating leases have exchange programs built in so you’re always ahead of the curve. Operating leases are treated as operating expenses that leaves your capital free to spend on other needs. You pay back on a fixed or seasonal schedule which better manages your cash flow.