One of the most demanding aspects of running a business is the efficient management of cash flow. And with major purchases sometimes making significant dents in readily available funds, it’s important to consider viable asset financing options. But necessary purchases are just that: necessary for operating and growing the business. Many businesses try to avoid lump sum capital expenditure and consider alternative financing when looking to purchase capital items such as motor vehicles, trucks, plant & machinery. Two of the more common financing options are known as chattel mortgage and rental (operating lease) agreements. Both methods of acquiring assets allow businesses to arrange flexible terms involving regular, fixed (usually monthly) payments. Each option has its own potential advantages and disadvantages – and different implications for GST and tax.
When a business takes out a chattel mortgage, it borrows a set amount for the purpose of buying specific goods – such as, for example, equipment related to the operation and development of the business. This type of loan is also commonly known as a Specific Security Agreement. It is different from a secured bank loan because only the goods financed are put up as security against the repayment of the loan, not the business’ present (and possibly future) assets.
Under a rental agreement, the financial provider purchases and owns the assets, and rents them back to the user. The business takes possession of goods for a fixed period, and pays for the privilege of using them. After the rental period, the business might opt to buy the goods, extend the rental period, or begin another agreement to rent new goods.
In rental agreements, GST credit and tax deductions can apply to monthly payments made during the reporting period. When they need to purchase essential equipment, more and more businesses are choosing to free up their working capital by exploring the pros and cons of available financing options to suit the specific needs of the business. ~ GetCapital offers a comprehensive range of asset financing solutions, including a chattel mortgage product that provides businesses with maximum flexibility surrounding loan amount, term, structure and multiple tax advantages due to asset ownership. The application process is easy and convenient, with 24-hour approvals and quick funding.