Equipment Finance

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(No Transcript)
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Equipment Finance

• A Plain English Perspective

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Why Finance?

• New Contract
• Business Expansion
• Diversify Your Business
• Cash Flow Buffer

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Choosing Appropriate Equipment Finance

• Types of Equipment Finance
• Chattel Mortgage
• CHP
• Finance Lease
• Operating Lease

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Choosing Appropriate Equipment Finance

• Why are they different?
• Quick Summary
• Different Ownership Perspective
• Treatment of GST is Different
• Different Expense Treatment for Income Tax
• Different Deposit, Balloon Residual Value
  Considerations
• Stamp Duty is Different.

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Chattel Mortgage

• You are The Owner User
• from the start, equipment has a secured charge
  over it until the final payment
• GST
• Payable on equipment purchase,
• Can be included in the amount financed,
• No GST on repayment amounts,
• ABN holders can claim Input Tax Credit Up Front
  
• Expense Claim
• Depreciation and Interest are Deductible for
  Income Tax
• Care should be taken here for Effective Life
  considerations
• Both Deposit and Balloon Payments can be
  structured into facility
• Stamp Duty is payable Up Front

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Commercial Hire Purchase

• You are The Hirer User
• from the start, equipment belongs to the lender,
  has a secured charge over it until the final
  payment. You then become The Owner
• GST
• Payable on equipment purchase,
• Can be included in the amount financed,
• No GST on repayment amounts,
• ABN holders MAYBE able to claim Input Tax Credit
  Up Front (If BAS is accrual method)
• Expense Claim
• Depreciation and Interest are Deductible for
  Income Tax
• Care should be taken here for Effective Life
  considerations
• Both Deposit and Balloon Payments can be
  structured into facility
• Stamp Duty is payable on Payments

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Finance Lease

• You are The Renter User
• from the start, equipment belongs to the lender,
  has a secured charge over it until the final
  payment. You then become The Owner after paying
  Agreed Residual Value
• GST
• NOT Payable on equipment purchase,
• No Need to be included in the amount financed,
• GST is payable on repayment amounts,
• ABN holders are able to claim Input Tax Credit on
  payments (If BAS is either cash or accrual
  method)
• Expense Claim
• Rent (payments) is Deductible for Income Tax
• No Effective Life considerations
• No Deposits allowed and Residual Values agreed at
  contract start
• Stamp Duty is payable on Rent

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Operating Lease

• You are The Renter User
• from the start, equipment belongs to the lender,
  has a secured charge over it until the final
  payment. You DONT become The Owner unless you
  pay a Residual Value as determined by the Lender
• GST
• NOT Payable on equipment purchase,
• No Need to be included in the amount financed,
• GST is payable on Rent amounts,
• ABN holders are able to claim Input Tax Credit on
  rent
• (If BAS is either cash or accrual method)
• Expense Claim
• Rent (payments) is Deductible for Income Tax
• No Effective Life considerations
• No Deposits, Residual Value is negotiable at
  contract end
• Stamp Duty is payable on Rent

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Choosing the Appropriate Structure

• Identify Your Needs
• Will this equipment fulfil my needs?
• Will this equipment last the term?
• Will this equipment be replaced?
• Identify the Risks
• Contract term vs. Usage Pattern
• Deposit Balloon Payment
• Cash Flow Implications
• Know Your GST Position
• Are you an ABN Holder?
• Are You an Accrual or Cash BAS Lodger?
• Know Your Tax Position
• Do I have carried forward tax losses?
• Does the Equipment have a long Effective Life

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Choosing Appropriate Lenders

• An appropriate lender is any reputable financial
  institution who will provide easy to use debt
  facilities which contain
• Competitive interest rates
• Appropriate structures
• A Minimum of conditions and constraints
• Tax effective arrangements
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• The key here is NOT to become too reliant on any
  one of these lenders.

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The Choice is YOURS

• Heavily rely on one bank or lender,
• have a significant exposure to them and work
  closely,
• knowing you are significantly reliant upon the
  health of that relationship and
• recognise the potential issues and difficulties
  that may occur if you need to extricate yourself
  from that relationship (a marriage)
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• Or
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• Have a number of concurrent arrangements
  (relationships) with
• a few banks or lenders, who are keen to assist,
• know that they are not the ONLY GAME IN TOWN and
• actively compete for your business on a deal by
  deal basis
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• Money is Money
• The only REAL difference can be in the people who
  deliver it,
• So ensure you find the right people.

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The Finance Brokers Role

• The Broker should
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• Source and maintain for our clients a number of
  finance approvals ready for use
• Those approvals need to be
• At Competitive interest rates
• In the Appropriate structures
• Include a Minimum of conditions and constraints
• Ensure arrangements are Tax effective
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• Do all of the leg work in documenting,
  executing and settling all transactions

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The Scouts MottoBe Prepared

• Prepare Financials
• At very least have up to date-
• Profit Loss Statement,
• Balance Sheet
• Commitments Schedule
• Know the impact of this New Transaction
• Can I Afford It Cash Flow Consideration
• Will it improve my business?
• Can I save Costs?
• Can I generate more Revenue?
• Assess the Risk
• Am I Over Extending?
• Am I Prepared for The Unexpected?
• Have I committed to Uncomfortable Balloon
  Payments?

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Financing StrategiesTips, Tricks Traps.

• Get more then one quote
• Compare quotes on an Apples for Apples basis
• Same Term, Same Residual or Balloon Same Amount
  Financed
• Understand the Different Types of Finance
• Make sure It Fits
• Understand the Business Impact
• Synchronise Payments with Cash Flow
• Get Good Tax Advice
• Compare the After Tax Cost
• Get Good Finance Advice from an Equipment Finance
  Specialist
• Co-ordinate Tax Finance Advice
• Two heads in agreement are better than two in
  disagreement and better than one.
• Pay GST ASAP to save on Interest Costs
• Compare Overdraft rate to Equipment Finance Rate.
• It maybe cheaper to finance GST

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Thank You for Your Time Phillip Rankin Miles
Beamish