As your business grows, so do the number of decisions you have to make regarding the finance of your motor vehicles, plant and equipment. Your decision to either purchase goods from available cash flow or finance them may have both cash flow and taxation implications for your business. What's best for your business will very much depend on your circumstances at the time.
Bendigo Bank has experienced and professional Business Banking Managers and an Equipment Finance Department which specialises in this field of finance which will assist you to make the appropriate decision for your business capital needs. A member of our highly experienced team will sit down with you and assess your requirements and then make a prompt recommendation on a course of action.
You'll find that we're competitive, flexible and able to offer you a choice of terms and finance options.
What sort of business equipment do we finance?
Bendigo Bank can organise finance for a wide range of items, including:
- cars, utilities and light commercial vehicles
- trucks and buses
- forklifts, cranes and earthmoving equipment
- computing and office equipment
- printing, medical and manufacturing equipment
- industrial plant equipment
Choosing between the alternatives
Financing business equipment has changed over the years particularly with the introduction of GST which has changed the cost effectiveness of traditional equipment finance for many businesses.
Businesses looking to finance equipment should also be aware that some finance products will have certain characteristics which prove more beneficial to them than others.
The following is a brief summary of these characteristics and for the purpose of the exercise, a number of assumptions have been made, including that the equipment is used to generate assessable income.
Remember, in all situations, what is best for your business will very much depend on your circumstances at the time.
The simplest option is to purchase the equipment straight out this however, may not be the best use of your working capital and may put undue pressure on your cash flow. While you will still be able to claim the depreciation as long as the equipment is used to generate assessable income, you will not be able to take advantage of any taxation benefits that may otherwise be available to your business.
Leasing involves you identifying the equipment you wish to use in your business and negotiating a commercial purchase price. The equipment is then purchased by the lease provider (e.g., Bendigo Bank) and leased to you for an agreed term, commonly two to five years.
With the introduction of GST, the bank as owner of the equipment may be able to obtain an input tax credit for the amount of GST included in the original purchase price of the equipment therefore, whilst the supplier of the goods will receive full payment for the purchase price, the amount financed is based on the original purchase price net of GST.
The predetermined residual values are based on Australian Tax Office (ATO) effective lives for various equipment and are guaranteed by the business. One of the things that have made leases so attractive in the past is that lease rentals are usually tax deductible as long as the equipment is used to generate assessable income whilst the GST component of the rental may also be claimed in the businesses next Business Activity Statement (BAS).
The Asset purchase (or commercial hire purchase as they are sometimes referred) facility is similar to the Finance Lease facility in that the finance provider, (e.g., Bendigo Bank) owns the equipment for the term (commonly two to five years) of the agreement however, once the final payment is made your business immediately assumes ownership of the equipment.
With an Asset Purchase facility the interest and depreciation components are usually tax deductible providing the equipment is used to generate assessable income. It should also be noted that the repayments under an Asset Purchase facility can be higher than rentals under a Finance Lease facility over the same term if there is no final Balloon payment built into the finance structure.
The Equipment Loan facility may be attractive to businesses that use cash accounting in their business as it may be able to claim the GST component of the purchase price of the equipment in their next Business Activity Statement (BAS) after the bank has made payment to the supplier.
As the name suggests, this means of financing the acquisition of equipment involves the provision of security to the Bank over nominated chattels (i.e. various plant, equipment and motor vehicle etc) by way of an Equipment Loan Agreement.
In simple terms, this type of finance is structured in the same manner as a property mortgage, with the equipment owned by the business, but allocated as security against the loan.
As with an Asset Purchase facility, the interest and depreciation components are usually tax deductible provided that the equipment to be financed is used to generate assessable income. Terms for finance also normally range from two to five years.
NOTE: As the taxation and accounting treatments of various finance products may vary, we recommend you seek independent expert advice before choosing an option.