Purchasing and upgrading work vehicle finance can be daunting for those who are self-employed or run a small business.
Whether you’re a carpenter or construction worker, financing these vehicles can free up cash flow, receive tax benefits, and take advantage of today’s historically low interest rates.
Gaining knowledge and understanding of commercial vehicle financing allows you to plan for the future and grow and expand your business. Continue reading this article to learn more.
The 3 Types of Business Vehicle Finance
Depending on the documents you have or what you are willing to disclose to a lender will determine the type of business loan you may qualify for.
Three types of business loans or chattel mortgage options exist Full Doc, Low Doc, and No Doc business loans.
Full Doc Vehicle Loans
This type of loan requires full proof of business income. This may be routine tax returns, business activity statements, profit and loss accounts or bank statements.
Each lender has different documentation requirements, constantly evolving in today’s financial environment.
Low Doc Vehicle Finance
Tax returns are typically NOT required for low-cost car financing and are therefore suitable for those behind on filing their tax return. Lenders need some proof of income.
Some accept letters from an accountant showing an estimate of projected profits or a recent BAS statement showing income or turnover. Bank statements are also a common form of poor documentation.
No Doc Vehicles Loans
As the name suggests, no documents are required to obtain this type of loan. However, you will need to declare an estimate of your income.
Own or mortgage the property with a confirmable credit reference from a previous or current loan. Most lenders also require that your business has been in operation for at least two years to qualify for this type of chattel mortgage.
The Benefits of Business Vehicle Loans
Business financing offers many benefits to small business owners. These include freeing up cash flow, tax incentives and retrofitting vehicles to improve efficiency.
Free Up Cash Flow
Interest rates are at historic lows, and the cost of borrowing has never been more profitable. Use your money to save for a rainy day or a Covid shutdown.
You can also invest this money in more products, advertising and marketing or use it as a deposit for a commercial property. Ultimately, this could grow your business to new heights.
Tax Incentives
Keep more money in your pocket. GST can be claimed immediately when purchasing a commercial vehicle. The interest paid on the loan is a tax deduction.
Additionally, instant asset write-off has been expanded and is now called “Temporary Total Expense”. The ATO says this government incentive aims to support businesses and encourage investment.
Upgrade your Work Vehicle or Invest in New Equipment
Having the right equipment for the job saves time and money. Traders can dream of the best ute with all the bells and whistles, including awnings, roof racks, tow bars and lift kits.
These accessories may be included in the new car’s purchase price and, therefore, in the financing amount.
Equipment and machinery, from tractors and excavators to lathes and paint booths, can give you an edge over the competition. Consider how your business can benefit from purchasing a new vehicle or equipment!
Low Interest Rates
Lenders tend to offer a more competitive rate for financing commercial mortgages than consumer loans. Prices are already at their lowest.
All commercial vehicle loans have a fixed interest rate, so now is the time to get a five or 7-year loan before interest rates inevitably rise.
How to Qualify for Business Finance
The primary conditions for a commercial loan are, on the one hand, having an active ABN and, on the other, using the vehicle at least 50% for commercial purposes.
Sole traders, the self-employed, trusts, partnerships, companies, and corporations can access commercial vehicle loans.
All Australian businesses must have an ABN. You already provide proof that you earn more than $75,000 per year.
Most lenders require your ABN to be active for at least 12 months and, for no-document loans, 24 months. In the current Covid environment, we have seen a significant change in people’s employment types and styles.
Some lenders now offer finance to new ABN holders if they have experience in the sector and good credit.
The second requirement is that you can justify that the purchased vehicle will be used “primarily” for business purposes. As defined by the ATO, the majority is 50% or more. Every business is different.
A carpenter travelling to cyclone-ravaged areas to help with recovery may justify purchasing a caravan or motorhome as professional accommodation.
An excavator driver who leaves equipment at the construction site and rides a motorcycle to and from the construction site may represent both the excavator and the motorcycle.
What Can be Purchased Using a Business Loan
With a chattel mortgage, you can finance all types of vehicles, from motorcycles and cars to utility vehicles, mobile coffee vans, delivery trucks and semi-trailers.
You can also finance machinery and equipment. Whether you are a farmer, truck driver. Earthmoving company, involved in manufacturing or repair, or work in an office, your business needs can be financed.
How to Get Your Finance Approved First Time, Every Time!
Business owners are experts in their field, just as financial brokers are experts in theirs. When your business needs financing, an experienced finance broker can save you time and money and will have access to many different lenders.
Who specialize in business financing. They will connect you and your situation with the most appropriate lender to ensure a positive outcome at the best price.
