How To Finance A Business Vehicle
Many small to medium enterprises rely heavily on their vehicles for running the business - in fact, in many cases, there would be no business without the key transport.
A vehicle is a big-ticket item, so you want to make sure that you invest in one that will deliver a strong return on investment. It's a long-term asset in most cases, and usually using finance rather than purchasing the vehicle outright will make better sense for your cash flow.
Ultimately, you want a vehicle that will boost your bottom line, and this means that getting the right business car finance in place is essential. Here's what you need to consider to choose the most cost-effective business car loans:
How to choose business car finance
Getting business vehicle loans is different to taking out a car loan as a private individual. A consumer looking for a car loan will simply want to get the cheapest possible rate on a car loan. A business has other considerations, such as:
- The effect of the car loan on business cash flow
- The opportunity cost when deciding how business capital is allocated
- Tax benefits of the different car loan options
Let's start at the beginning and take a look out what we need to know in order to optimally balance these considerations.
1. What will the car be used for?
This question is really important because it not only determines what type of car you should buy, it also helps to determine which type of business car finance will be the most cost-effective.
Remember, the car is an asset to the business, not something you need to be emotionally attached to. Get a car that performs the tasks you need to get done in a practical, efficient way.
Factor in the cost of insurance, registration, fuel and ongoing maintenance when considering different car models. If a small car or a hybrid will do the job, you can send the message that your business is environmentally conscious.
Consider these seven best delivery vehicles for business for some good options.
2. Is it better to buy new or used?
Now you know what you need the car to do, the next question is to identify whether you need to buy a new vehicle, or whether buying a certified used car will be a better financial decision.
This question will depend on a number of factors including:
- The number of kilometres you expect to drive each year
- Your business cash flow
- How fast your business vehicle needs change over time.
If you expect to do high mileage each year, you might lease a car to ensure it's replaced with a reliable new model at regular intervals to keep your business running consistently.
3. What's your cash flow like?
If you rely on seasonal cash-flow, then you may prefer to take out a chattel mortgage to purchase a second-hand vehicle with flexible repayments that fall due when your income flows in.
Do you want to own the vehicle?
While a lease can be cheaper and give you better cash flow for businesses with a steady income, a chattel mortgage means that you'll own the vehicle at the end of the loan term, and is usually less expensive overall.
Remember that whether you buy a new car or a used car, you should negotiate the best purchase price on the car separately to arranging your car finance.
If you need some advice about whether to buy new or used, and the best type of finance, a car loan advisor can help you to select a loan that matches with your business financial profile when you start a complimentary loan assessment. You can even get assistance to find the vehicle at wholesale prices.
4. Consider tax
There are two ways that you can claim the purchase of a car against your business tax as long as you have a registered ABN:
- Claim for interest paid on finance used to fund the purchase
- Claiming depreciation of the asset
Just to be clear, you can only claim the 'portion' of the asset used for business.
This means that if you have a chattel mortgage for a van that you use for business during the week, but take out surfing on the weekend, then you can only claim 75 per cent of the cost.
You'll need to do a short logbook if you use the asset privately to ascertain how much use is business and personal.
Act quickly to claim the small business tax break
Until June 30, 2018, the small business tax break is still available for small businesses. To be eligible, the business needs to have an aggregated turnover of less than $10 million.
A small business can deduct the business cost of most assets under $20,000 purchased before this date. The asset can be either new or second hand. You'll claim the instant full depreciation deduction through your tax return in the year that the asset is first used or installed ready for use.
If purchasing an asset valued greater than $20,000 then you can claim depreciation of 15% in the first year, regardless of the date of purchase, and 30% each following year.
5. Do you want to pay out the loan early?
When you purchase an asset that you intend to keep in the business, you might want to finalise the loan if you have a boost in income to free up your capital for other purposes.
If this is the case, then a chattel mortgage might be a good option as it usually comes with flexible payment options and smaller payout fees.
Business vehicle loans to avoid
A personal loan should be a last resort to purchase a car for business use. This is because they usually attract higher interest rates, and often only provide small funding amounts.
Small business car loans can be hassle-free and fast if you seek the right advice. For more information on your business vehicle finance options, enquire with a Positive loan adviser.