Financing plant and equipment is very different to financing property, because the value of the asset will fall, rather than grow, over time.
Given the shorter life spans of the products and their depreciation, three broad types of finance strategies have emerged for equipment finance:
Each of the different types of loans has advantages and disadvantages that should be considered in context with the circumstances of your business.
Leasing, as the name suggests, means the business pays a fee to use the equipment, but does not gain ownership – though the fee is generally tax deductible.
Chattel mortgages have risen in popularity since the introduction of the GST.
The client has full ownership of the asset from settlement and as such may be entitled to claim back GST on the purchase price and ongoing depreciation on the asset.
The loan repayment is similar to a home loan in that it includes both a principal and an interest portion. While the principal is not tax deductible to the client, this may be offset by the ability to claim depreciation allowances.
Commercial hire purchase contracts are fairly similar to chattel mortgages in that ownership of the asset transfers to the borrower after the last payment is made. Depreciation allowances however, still rest with the borrower.
The difference with this style of finance contract lies in whether the GST on the item can be claimed back in one lump sum or progressively.
To find out more about the most efficient way to finance your equipment, contact We Find Finance.
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