There are times in business where a business owner requires a lump sum amount to purchase new equipment or vehicles to help grow their business. It’s usually about the same time that they’re short of a lump sum amount that could be used to purchase the equipment or vehicles outright.
How do you own the latest equipment and vehicles?
There are other options available to a business owner. The one we will look at today is Hire Purchase.
So what is Hire Purchase?
HP is a loan agreement, where your bank provides your business with full or partial funding for vehicles or equipment. The bank buys the equipment and your business pays for the assets in instalments for an agreed period. When you make the final payment, you then own the asset. Loan charges, interest component and depreciation associated with the HP may also be tax deductible (check with your accountant!).
So what are the benefits to Hire Purchase?
- Security is usually the asset itself – preserving access to working capital credit lines.
- No capital outlay – no up front deposit needed, which means you can use your working capital for other core business needs.
- Equity – by taking equity in the equipment through a trade in or deposit you can reduce the amount funded and therefore the total interest paid.
- Input tax credits and tax deductions – provided you are registered for GST, you should be entitled to claim an input tax credit for GST included in the price of the asset acquired. And generally, the interest you pay plus the depreciation of the asset should be tax deductible to the extent the asset is used in your business.
- Tailoring to match your cash flow – repayment cycles aligned with your anticipated cash flow.
- Simplicity – instalments will be automatically debited from your nominated business account.
What are the features to Hire Purchase?
- Most depreciable assets can be funded.
- Choice of interest rate types.
- Choice of payment options.
- With the final payment of the agreement, the ownership of the asset with be transferred to you.
Important Facts* (Information provided by National Australia Bank)
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Interest rate: |
Available on application. |
Interest type: |
Agreements under $500,000
|
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Agreements over $500,000
- Fixed
- Variable
- Capped and collared
- Or, a combination of these.
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Minimum term: |
12 months |
Maximum term: |
72 months. Other terms can be considered on application. |
Minimum amount: |
Greater than $10,000 is preferred. |
Maximum amount: |
Unlimited |
Repayment options: |
Monthly, quarterly, half-yearly, annually, in arrears, in advance, or to match any seasonally-driven cash flow need. |
Ownership: |
The bank will own the asset and rent it to you. At the end of the term, assuming all payments are made, title to the asset is transferred to you. |
Security Required: |
Generally, the security is the asset itself. A director’s guarantee and indemnity may also be taken as supporting security. Additional security might also be required – this will be assessed on application. |
Related options: |
Equipment Loans
Finance Lease
IT Rental |
What it costs: |
Fees and charges are payable. You will need to request specific details from your bank or finance broker. |
Terms and Conditions: |
Terms and Conditions do apply. Request full details from your bank or finance broker. Credit approval and asset eligibility criteria may also apply. |
Where to from here?
The information for this article has been provided by NAB. For further information on how you can secure business financing for your business, please contact Andrew Halsey, Business Relationship Manager, Telephone: 08 9333 4147 and mention that you were referred by Innova Business. |
