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Asset Management

3 reasons to finance a truck

For those in the transport industry, it’s highly likely your business revolves around your vehicle. This can be a serious initial outlay of cash, so if you’re starting your business from scratch, financing your vehicle may be a more feasible way to enter into the market. There are a range of finance options to suit your needs as a small business and we’ve listed the three reasons why you should consider financing your vehicle. 

Reason 1: There is a huge range of truck finance options

If you opt to finance your truck rather than buy, you’ll be spoilt for choice! There are several options, each with slightly different terms to consider in order to find a business vehicle finance option that is best suited to your small business situation. But how do you make the choice that is right for you? You 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. Essentially, the lender purchases the vehicle on your behalf and then leases it back to you. You make monthly lease payments until the term is up, where you can either pay off the remaining value on the lease and take full ownership of the car, trade the car in or pursue other truck finance options. 

Commercial Hire Purchase

This type of business vehicle finance involves you 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

Simply, 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 certainly 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.

Reason 2: You can reap numerous business tax benefits

Depending on how much you spend and the business vehicle finance option you select, your business may receive tax benefits. For example, if you operate a business with an annual turnover of less than $10 million, an immediate tax deduction can be claimed on a vehicle under $20,000.

However, how much of the company vehicle you can claim as a tax deduction varies greatly depending on which truck finance option you choose. For example, a chattel mortgage will allow you to claim interest charges and the depreciation on the vehicles as a tax deduction, while under a finance lease you can claim a deduction for the entire lease. Make sure you ask these questions for 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.

Reason 3: Business vehicle finance is flexible

 ‘Flexible’ means that there are a wide range of finance options available to you, and most of those options enable you to select a repayment schedule that suits your small business needs and budget. 

The length of the term associated with your business vehicle finance 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.

HIGHLIGHTS

  • When it comes to truck finance you have plenty of options, take the time to consider what is right for you
  • Depending on the cost of your vehicle and the finance option you've chosen there could be tax benefits in it for you
  • Most truck finance options have terms between 12 months and 5 years so consider what you need in terms of flexibility before locking yourself in

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