Industry Insurance

Three reasons why financing a truck could make good business sense

For many owners and operators of equipment who are starting a business – the question about truck ownership is high on the list. Purchasing a truck can be a serious initial outlay of cash, but the good news is there’s a range of finance options to suit small businesses. Here’s three reasons why you should consider financing your vehicle:

There are several finance options, with different terms to consider to find a business vehicle finance option best suited to your small business situation. But how do you make the right choice? You’ll need to consider your cash flow, budget, and the finance terms as a starting point.

Finance Lease
A finance lease is where the finance lender retains ownership of the vehicle while you enjoy the benefits of ownership of a commercial vehicle. You make monthly lease payments until the term is up, whereby you can either pay off the remaining value on the lease and take full ownership, trade in or pursue other finance options.

Commercial Hire Purchase
This involves hiring a truck from a lender for an agreed period. After making fixed monthly repayments over this period, you may take ownership of the vehicle at the end of the term, provided you have paid off the loan in full.

Chattel Mortgage
A Chattel Mortgage sees a financier lending you the capital you need to purchase a vehicle. You immediately take ownership of the vehicle, but the lender takes out a mortgage on the vehicle as security on the loan. Once the contract is over, the mortgage is removed.

Novated Lease
For small businesses with employees, knowledge of this truck finance option is essential. It allows employees to use their pre-tax income to lease a vehicle. The employer is responsible for arranging for the lease payments to be taken directly from the employee’s salary, meaning they can reduce their taxable income.

Business Loan
A standard business loan is another option to fund the purchase of a truck. You have a range of options available with typical small business finance, including a line of credit and a basic term loan.

Depending on how much you spend and the business finance option you select, your business may receive tax benefits. For example, under current temporary tax depreciation incentives, if you operate a business with an annual turnover of less than $50 million, an immediate tax deduction could be claimed on trucks and mobile plant up to $150,000.

How much you can claim as a tax deduction varies greatly depending on which finance option you choose, the asset itself and the size of your business. Make sure you ask your financier and consult your accountant before making any decisions so that you can leverage these business tax benefits and know what you’re entitled to claim.

There are a wide range of finance options, and most options enable you to select a repayment schedule that suits your small business needs and budget.

The length of the term is important because it can influence how much money you must pay in order to gain ownership or, on the other hand, for loans that give you ownership up-front, the term is also important to consider for forward planning of payments.

Most truck finance options have terms of between 12 months and 5 years, but if it’s extra flexibility that you need, then you’ll want to have a finance lease right at the top of your consideration list. This option doesn’t give you equity in the truck, but you can trade-in your truck at the end of a lease for a new vehicle and have the options to purchase the truck or walk away entirely. Most of the business tax benefits are available to you through a finance lease also.

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