How long can I finance the asset over?

Generally most vehicle & equipment financiers will provide finance terms of between 12 months to 60 months. For more expensive items that have a longer effective life sometimes up to 10 years is possible but this is not the norm.

What’s a balloon or residual payment?

An end Balloon payment, or also know as a residual payment, is an amount due at the end of the agreed contractual term to finalize the contract. It is commonly utilized to structure a facility whereby the clients require a lower monthly repayment over the contracted term, to assist in managing their cashflow.

It is critical however that you not set the end balloon or residual value too high when entering a finance contract, or the result could be a negative equity position when the end balloon / residual value falls as in this instance the amount to finalise the facility may exceed the value or trade value of the goods.

For example if the balloon / residual payment  was set at 40% from the outset, but over time the assessed market value has decreased further and is only valued at 30% of the original price, then there would be a negative equity position as follows;

In the above example you would have to either pay the difference out of cashflow to clear the end debt or if acceptable to the financier if you are entering a new facility add the negative equity to the new purchase.

The latter is fraught with danger as you can enter a spiral whereby the problem is compounded when the next end balloon falls due & the negative equity is inflated even further.

With Leases the ATO has clearly defined guidelines as to the Residual Values allowable, particularly on the lower end (as you must have a Residual Value) with the likes of Commercial Hire Purchase & Chattel Mortgage more flexible as you can structure the facility without an end balloon payment.

Structuring a higher end balloon or residual value is more a financier’s issue in that the greater the end balloon the greater the risk of negative equity & potential losses to the financier so this is normally negotiated with the financier at the time of application for finance.

What are the types of vehicle and equipment finance?

1. Finance Lease
2. Operating Lease (also known as rental)
3. Commercial Hire Purchase (also Known as Hire Purchase or CHP)
4. Chattel Mortgage (also known as Commercial Loan or Equipment Loan)
5. Novated Lease
6. Insurance premium funding (not so much an equipment finance product but rather a general insurance & workers compensation funding solution)
7. Fleet leasing & Management
8. Equipment Import Finance

Finance lease

A finance lease provides 100% finance to acquire assets for use in your business.
Our finance lease is a rental agreement where the Bank owns the asset and you then lease it for an agreed term and rental amount.

Features

• Most depreciable assets can be financed
• Minimum finance lease amount is generally $10,000 over terms that range from one to five years. Lesser amounts & longer terms are sometimes available depending on the goods being financed
• Interest rate and repayments are fixed for the term of the contract
• Irregular or seasonal payment schedules can be considered to suit your cashflow

Business benefits

• Preserve your working capital with 100% financing
• If you use the asset to generate income, rental payments may be tax deductible
• You may be entitled to claim an input tax credit for rental and other charges that are subject to GST

Operating lease / Rental

An operating leases & Rental are agreements between you and the Bank to rent equipment for use in your business for an initial fixed period with options available following that term.
It can be an efficient and cost-effective financing strategy if you are continually upgrading your vehicles and equipment, or if you want to rent rather than own your asset. This is particularly good for high depreciation goods that are tools for the business rather than assets. Eg IT systems, photocopiers & phone systems.
At the end of the rental period generally you have threes options

• you can simply return the equipment to the Bank (subject to return conditions eg must be in fair wear & tear for its age), without incurring the liability of a residual value
• you can negotiate to continue to rent either on a casual or fixed term basis
• you can negotiate to purchase the goods

Particularly with Rental there are normally financiers clauses for you to decide on one of these at least 90 days out of expiry of the initial term otherwise the facility may automatically ‘roll’ over for a further period of generally a further 90 days or possibly 12 mths.

Features

• Most depreciable assets can be financed
• Minimum operating lease amounts vary from as low as $2,000 with terms that range generally from one to five years
• Provides access to the latest equipment and technology without the associated risks of ownership
• Interest rate and repayments are fixed for the term of the contract

Business benefits

• Preserve your working capital with 100% financing
• Guards against obsolete equipment and offers the flexibility to respond to changing market demands
• Removes the worry of disposing of obsolete equipment in a potentially weak resale market
• Lease rental payments may be off-balance sheet, providing scope to improve business performance ratios such as return on assets
• If you use the asset to generate income, rental payments may be tax deductible
• You may be able to claim an input tax credit for rental and other charges that are subject to GST

Hire purchase

A hire purchase arrangement is an agreement to purchase vehicles, plant or equipment subject to payment terms. During the term of the agreement, the financier owns the goods. Ownership is automatically transferred to you when you make the final payment. You also have the option to purchase the equipment at any time during the term of the agreement.

Features

• Repayments can be tailored to your cash flow
• Irregular and seasonal repayment plans are available
• Minimum finance amounts are generally greater than $10,000 with no maximum
• You can borrow 100% or less deposit or trade in
• Repayments can be structured monthly in advance or in arrears
• Contractual terms can be fully amortised or can include an end balloon payment whereby reducing the ongoing monthly committment

Business benefits

• You own the equipment when the final repayment is made
• You can purchase the equipment at any time during the term of the agreement
• There is no need for a deposit
• Flexible repayment arrangements maximise cash flow
• The interest component of the repayments and the depreciation on the equipment may be claimed as tax deductions, provided the equipment is used to generate assessable income

Repayments are not subject to GST.

Chattel Mortgage

A Chattel Mortgage (also known as Equipment Loan, Commercial Loan Agreement, Lease Purchase or bill of sale by some lenders) is a loan agreement where you borrow funds to acquire an asset. You provide security for the loan by way of a mortgage to the financier over the asset financed.

Features

• May be used to finance most equipment that generates income
• Monthly payments can be tailored to suit your cashflow
• You can borrow 100% or less deposit or trade in
• Minimum finance amounts are generally greater than $10,000 with no maximum

• Loan can be structured with or without balloons, and with payments in advance or arrears
• Interest rate and repayments are fixed for the term of the loan

Business benefits

• You are generally not required to provide a deposit
• You don’t pay GST on the loan or the repayments
• You retain ownership of the asset throughout the term of the loan
• The interest component of the payments and the depreciation on the asset may be tax deductible, provided you use the equipment to generate assessable income

Equipment import finance

Equipment import finance is a working capital solution that provides for all your trade and related asset finance requirements. It is suitable for businesses that need to invest in capital equipment or that require a combined facility offering foreign exchange, import finance and asset finance solutions.
The equipment import finance facility includes:

• Import documentary credit
• Trade advances
• Hire purchase
• Equipment loans
• Finance leases

Business benefits

• Provides for all aspects of manufacture, import, commissioning, payment and long-term asset finance
• Facilitates payment to offshore manufacturers in any approved currency
• Allows foreign exchange and interest rate hedging
• Provides certainty of pricing

Novated lease

Novated leasing from the financier provides a flexible, portable and convenient way to acquire a motor vehicle as part of an employee’s salary package.
Employees lease a motor vehicle of their choice and while they remain employed, their employer agrees to pay the rentals directly from the employee’s gross salary.

Features

• Terms that range generally from one to five years
• Interest rate and repayments are fixed for the term of the contract
• Leases may be structured as either finance lease or operating lease and may include the option of vehicle maintenance and acquisition
• The lease is portable so employees can take the vehicle with them should they change employers so long as the new employer is agreeable in becoming the replacement sublessee.

Business benefits

• There may be tax advantages for the employee’s remuneration package and professional advice should be sought
• Novated leasing may be a more cost effective alternative to operating a fleet of company vehicles for the employer as should the employee leave they are not left potentially with a surplus vehicle they need to dispose of.
• Employee vehicles are treated “off balance sheet”
• Time and costs associated with the management of the vehicle are not the employer’s responsibility

Fleet leasing & management

Specialist Fleet leasing & management financiers offer a wide range of motor vehicle fleet funding options that take the headache out of managing corporate motor vehicle fleets and salary sacrifice vehicle programs. They may also offer fleet management services.
Generally fleets of 10 or more are suited to this type of facility however some offer facilities for smaller fleets.

Why fleet management?

Working with a fleet specialist ensures an effective fleet management solution. The outsourcing of these functions frees your staff to do their jobs, providing your business with specific expertise to realise significant efficiencies and savings.

Features

Fleet management financiers generally offer

• Acquisition and disposal of vehicles
• Full maintenance
• Ongoing Management of vehicle fleet
• Provision of fuel cards
• Insurance programs
• Registration and compulsory third party insurance
• A roadside assistance program
• Traffic infringement and accident management
• Simple systems and reports to allow you to administer GST and FBT
• Regular and ad hoc reporting
• Fleet intelligence

Insurance Premium Funding

Simple and affordable insurance premium payments

Spread the cost of your policies

The financier settles the insurance premiums with the Insurance company on the insured’s behalf, then the customer simply pays off the finance contract over a predetermined term generally 6-12 monthly instalments.
It’s an easy way to spread the cost of insurance, smoothing the client’s cash flow and helping the retain the funds you need for other financing and day-to-day operating costs.

Top-ups with no extra paperwork

If the client needs to top up their professional indemnity or other business insurance policies, most funders allow them to do it without signing any additional forms. The funder simply adds the extra amount to the loan. Once you’re set up, ongoing funding is easy and straightforward.
Generally no financial analysis, director’s guarantees or additional security is required for IPF funding unless the premiums are larger, usually greater than $150k & $75k for Workers Compensation.

Renewals are easy too

Some funders only require copies on the renewal policies with no additional paperwork required to be signed.

What’s the difference between Commercial Hire Purchase and Chattel Mortgage?

There are two major differences between a commercial hire purchase and a chattel mortgage.

1. The first being with a Commercial Hire Purchase the owner of the goods is the financier and essentially “hires” the goods to the customer, whereas the Chattel Mortgage is owned by the customer and the financier takes a mortgage over the asset as security.
2. Currently the GST treatment varies depending on whether the business is set up for GST purposes on either a ‘Cash’ or ‘Accrual’ & will determine whether a CHP or Chattel Mortgage better suits the businesses situation as it will impact on whether GST can be claimed up front or pro-rata over the life of the facility.
3. At present Chattel Mortgages attract additional up front costs including Stamp Duty & ASIC fees in additional to the standard establishment / documentation fees & REVS charges
4. Both types of finance allow the borrower to claim up to 100% of the Depreciation & Interest as a tax deduction
5. Goods being financed by either facility have to be used for greater than 50% business use

What assets can I finance?

Generally goods that can be depreciated for business purposes however different financiers have differing lending policies regarding what types of goods they are willing to finance.

Can I payout earlier?

All financiers will allow either a CHP, Chattel Mortgage or Lease to be paid put earlier than the agreed term however each lender’s policies on how their individual payout formulas are calculated vary from one to the next.

Can I make extra repayments?

Generally speaking this is not advisable as whilst it places the contract in advance of the prescheduled repayments it is unlikely any taxation benefits would be achieved, advance payments can’t be redrawn (as in a home loan) & there is a danger that if a Direct Debit was in place it may not deduct further payments until the contract once again fell due.

If the last situation arose then the business would have to manually make the future repayments via a coupon book method.

What are the taxation / GST implications?

Refer previous

What are the interest rates?

Each financier sets their own interest rates which is governed by the lenders costs of funds + a margin.

In the case of Leases as the financier claims the Depreciation as a tax deduction depending on the actual structure of the lease this will also impact on the customer rate & can have a positive or negative impact on same.

What information do I need to apply?

Generally to borrow for a Lease, CHP or Chattel Mortgage a financier will require

• an application form
• signed Privacy forms
• a commitment schedule
• details on the goods & where the goods are being sourced
• financial information that can incorporate past 2-3 years financials for the business, personal tax returns & sometimes cashflow forecasts

When Can I pick the car up?

Suppliers generally want to see a settlement advice from the financier before releasing the vehicle but increasingly with some car dealerships they are wanting to see the actual funds in their bank account prior to releasing the goods

How long does it take?

From application to approval to settlement for a simple deal can be as short as a couple of days. The more complex the deal & the more analysis required by the financier can extend that period considerably

Who do you use?

We have access to all the major equipment financiers through to private lenders where applicants fall outside the normal parameters of lending due to eg start up businesses, past credit issues, specialized goods.

Does it cost more to use a broker than the car yard?

No

Can I pay for the goods now and finance later?

So long as the goods were acquired usually within the last 90 days, there is evidence of payment & the original invoice can be supplied then a Sale & Lease / Hire Back can be sought.

When does my first payment start?

This depends on your cashflow preference. The repayments can be set up as payments in advance, that is the first payment is taken at settlement of the transaction or payments in arrears, which means the 1st payment is due 1 month from date of settlement