While it would be ideal if your company had a large enough cash reserve to acquire vehicles altogether, the fact is that, like individuals, businesses typically require a loan to cover major expenditures such as automobiles or trucks. The good news is that there are several financing alternatives available to acquire your business and the vehicle(s) it requires.
Business Car Financing Options
Mortgage on Chattel
A chattel mortgage is the most straightforward choice, functioning similarly to a typical consumer auto loan. The company obtains a loan secured by the automobile and repays the lender during the loan period. Ownership is immediately transferred to the firm, but the lender has the right to reclaim the car in the case of a default. Because a chattel mortgage is a business loan, the vehicle must be utilized for business more than half of the time. A balloon payment after the loan term can be included in chattel mortgages, reducing monthly repayments and freeing up cash flow.
The ‘chattel’ is the asset used as loan collateral. A chattel mortgage does not have to be used to acquire a car; it might also be used to purchase other sorts of expensive machinery or equipment.
After acquiring a car with a chattel mortgage, your company may be able to claim the following tax breaks:
The purchasing price includes GST.
Repayment interest
Depreciation
If a chattel mortgage sounds like a viable method for your company to finance the vehicles it requires, visit carloans.com.au to learn more.
Purchase of Commercial Hire
A commercial hire purchase (CHP) differs from a conventional business automobile loan in that the lender purchases the vehicle on your behalf rather than giving you the money to do so. The car is then rented to you for the rest of the loan term until it is paid off, at which time ownership is transferred to the business. Because of the purpose to purchase after the loan period, interest repayments and depreciation can still be claimed as a tax benefit.
Commercial hire purchases may have more flexible repayment terms than traditional chattel mortgages. Repayments are also exempt from GST. Even if the business does not yet own the car, you must still pay for service and repairs.
Lease finance
If you want additional flexibility, leasing may be a smart option for getting automobiles for as long as you need them. A financing lease is a contract in which the financier purchases an automobile and then loans it to the business throughout the lease period. When this period expires, the company may either buy the vehicle altogether, take out a new lease, or the financer simply returns the vehicle.
Leasing can save your company from being trapped in paying off an outdated vehicle with diminishing utility. Payments are also deductible as a business cost for tax purposes.
Operating contract
An operational lease indicates that the vehicle is rented for some time less than its useful life. It simply returns to the financial firm after the lease period, with no need to make the residual payment. This is especially handy if your company has a significant car turnover.
Repairs and services might also be included in lease payments, which can help keep spending more regular. If you take up a financing lease, you must make monthly payments and organize these charges individually. While operational lease payments are often greater, you may prefer predictable, regular payments.
Lease renewal
A novated lease is a specific arrangement in which a company’s employee/s can directly lease automobiles, with repayments deducted from the employee’s pre-tax wage. Salary sacrifice is a widespread method of remuneration in Australia, and it is frequently quite advantageous to the employee. From a business standpoint, it may be an excellent method to thank loyal employees or incentivize them to work for you.
Choosing the Best Car Loan for Your Company
With so many options, deciding which finance solution is best for your company may appear difficult. Every one of these possibilities will have a circumstance in which it is the obvious decision; it’s just an issue of determining what your priorities are. Here are a few things to think about:
The cost of the car. If you only require a single van to transfer equipment, you may decide that a chattel mortgage or other alternatives in which you assume ownership of the vehicle are worthwhile. You may determine that it is always likely to come in useful, and even if it does not, it is pretty affordable to get a cheap used van. On the other hand, if you need to utilize numerous huge vehicles, which would be excessively expensive to own outright, you may want to consider leasing.
How long you will require the car? In other cases, the car may not be required consistently. For example, a more seasonal firm, such as a landscaper, may need more vehicles during the warmer months than during the slower, cooler months. In these circumstances, an operational lease for the length of time the vehicle is estimated to be needed may be the best option.
How your company obtains funds. Similarly, if your company’s cash flow is inconsistent, you should examine how frequently you will need to make payments toward the car and look for financing alternatives that allow you to make repayments when you have an excess of cash.
Tax advantages. There are several tax breaks available for automobile finance. Standard automobile loans provide for interest and depreciation deductions, however, leasing payments are treated as a business cost.
Usage. Many business cars may also be used as personal automobiles. You may consider a novated lease if you have an employee who could use the corporate use as their family automobile. Other cars may be less suitable for this.
How to Get Approved for a Business Car Loan
It’s pointless to research which funding options are ideal for your company if you can’t get accepted. As with any loan, a lender will want you to show that you will be able to make your payments and that there is a low chance of you defaulting. The following are a few strategies for convincing your lender that your company is trustworthy.
Examine and enhance your company’s credit. The lender, like punters, would want to see that your company has a track record of paying obligations and invoices on schedule. It’s a good idea to keep an eye on your company’s credit score and strive to remain on top of your responsibilities to keep it strong.
Demonstrate that the repayments are within your budget. The lender will want to get a sense of your financial status. Trying to borrow above your means is a definite way to have your application declined.
Limit the number of loan applications. Although it may appear unfair, lenders will not look favorably on prospective borrowers who have submitted applications all around town. A lender may see this as desperation.
Communicate. While it’s tempting to view banks and lenders as the enemy, keep in mind that they, too, are businesses, and you are a prospective consumer. They do want to close these agreements, so if you have open lines of communication and are honest about your company plan and financial predictions, your lender is likely to work with you to find a solution.
Look around. It’s rarely a smart idea to go into the first loan you come across. In addition to analyzing different forms of financing, you should evaluate goods from several banks and organizations to obtain the best price.