Thinking of getting a new car? Here are three tips to improve your profile with the lenders

/in , /by
  1. Don’t apply for loans with multiple lenders to get the best rate, this will negatively impact your credit score – we can assess your profile against multiple lenders without impacting your credit file.
  2. If you own a vehicle, trade it in or add a deposit to put towards your loan.
  3. If possible wait until your have lived in your current address or worked in your current job for a minimum of 6 months (this improved your stability)

To find out more about gaining the best rate without impacting your credit score contact us on 1300 252 088.

Financing of a small business

/in , , , /by

Many people dream of running their own business but four out of five never do it. If you’ve got a good idea, develop a business plan, then talk to an accountant or business adviser about your finance options.

Your business finance or commercial finance options include:

  • Business loans
  • Commercial loans
  • Lines of credit
  • Home equity loans
  • Franchise funding
  • Venture capital

How much money does your business need?

A lot of small businesses fail not because they’re offering a poor product but because they run out of cash. How much money do you need for your business? Not just to pay for set-up costs but to cover your living expenses while you get established? Don’t even think about going into business until you’ve done a detailed business plan and cash flow projection. Otherwise you’re planning to fail.

Business finance vs commercial finance?

Both business finance and commercial finance are generally secured by either commercial or residential property. However, business finance is probably more associated with small business or SMEs (Small to Medium Enterprises). Commercial finance tends to relate more to the financing of commercial property.

Business loans

Business loans are where the finance is for business purposes and the interest cost associated with the loan is tax deductible against the profits of the business. Small business operators provide security by way of residential or commercial property.

Commercial loans

A commercial loan is where the finance is for the purchasing of a commercial property, commercial property development or business purchase.

Similar lending requirements apply to both business and commercial loans. Commercial loans are secured either by commercial or residential property. With larger corporate borrowers, lenders can rely purely on the assets of the company as loan security e.g. trade debtors.

Lines of credit

With a line of credit, you’re given a borrowing limit by the lender and you draw down money – up to that limit – as you need it. The advantage of a line of credit is that you only pay interest as you draw down money. The disadvantage is that the rate of interest may be higher.

A line of credit should be “fully fluctuating”. ie It should only be used as a short-term financing option rather than for the purchase of major commercial plant or equipment.

Home equity loan

Many people have limited cash reserves but have built up equity in their homes. That is, their homes are worth more than they still owe on their mortgages. You can tap into this equity to help finance your business or investment by taking out a home equity loan.

Start-ups versus existing businesses

If you’re thinking of running your own business, you should be aware that it’s generally easier to get business finance for an existing business rather than a start-up. Lenders tend to view start-up businesses as inherently risky whereas an existing business has a track record they can review. However, there are business finance options for start-ups.

Franchise finance or franchise funding

To meet an emerging need, new business finance products have come onto the market to help people buy franchises and equipment. Lenders can be more inclined to provide franchise finance because, while your business might be new, it could be based on a proven formula.

Venture capital

Venture capital (VC) describes where a lender gives you funds in return for a stake in your business. The further your idea is from fruition, the less likely the venture capital or VC firm will be to give you the money, and the more equity they’ll want in return.

To discuss your business finance options, call us on 1300 252 088.

 

Is a Zero percent deal that great?

/in , , /by

Zero percent financing sounds great, but as with so many things, there are often strings hidden in the deal that could end up costing you money.

Think about it: The car financing company isn’t really lending you money for free. It would go out of business pretty quick if that were the case.

The zero percent deal is usually offered through the manufacturer’s finance arm, and is a marketing strategy. Even so, when you are paying no interest, the company has more of an incentive to make up the lost profit in other areas. In other words, you may get the sweetheart zero percent financing deal, but find it difficult, or even impossible, to negotiate a better price and the financing is often limited to a particular spec and possibly even a colour. Great, if it is what you really wanted.

These rates are also generally reserved for customers with nearly flawless credit. Your average buyer may well find that once they get in the door, they don’t qualify. But at that point, the dealer already has them on the hook.

On most occasions, it is almost always cheaper to negotiate a great discount on the price of a new car, and arrange the most affordable independent finance available in the market place.

There are other hidden catches sometimes tied to zero percent deals that could end up costing you money, including fixed servicing requirements, along with insurance and warranty clauses. Make sure you read and understand all the fine print before signing on the dotted line.

Simply put: buyer beware.

As a general rule, you will probably be better off negotiating the best deal at the dealership and then securing your own financing. A simple rule of thumb is to compartmentalise your car buying experience.

  • Buy from the dealer.
  • Get your own financing.
  • Sell your car old car independently.

 

Give us a call on 1300 252 088 to discuss your car financing requirements.

Should you lease or buy your business assets?

/in , , /by

Small business owners often don’t have the funds available to purchase business assets outright without impacting their cash flow. Yet ownership can be attractive. So should you lease or buy?

Financing options

You may not always have timely access to cash to buy business assets outright, or you may have more productive uses for your funds. There’s a range of options when it comes to buying and financing business assets.

Equipment loans: If you want to immediately own a business asset such as key plant or equipment, then you might opt to take out an equipment loan. The interest payable on the loan generally attracts a tax deduction.

HP agreement: A hire purchase (HP) agreement may be more suitable if you ultimately want to own the asset, but don’t want to tie up available cash. With HP agreements, the bank or financier purchases the equipment and initially hires it to your business for an agreed period of time.

Finance lease: A finance lease can also ultimately result in ownership of the asset, whereby the bank initially owns the asset and agrees to lease it to you for a prescribed period. The rental payments on a finance lease can be structured with a residual value balance, allowing you an option to purchase at the end of the agreement. This has the advantage of making the initial cash flows more manageable.

Or you may simply choose to lease an asset for an agreed term, which can have its own advantages, such as flexibility and certainty of cash flow.

Should you buy your premises?

Potentially one of the most significant decisions facing a small business is whether to buy or lease business space. Owning commercial real estate can be appealing; the premises may become a significant asset for your business, bringing potential for capital growth whilst negating the need to pay rent.

Owning your premises may also bring a welcome feeling of security. It also means you have control over how the space is laid and fitted out.

Purchasing your premises may also allow you to borrow against the asset in order to fund business expansion, while in some circumstances there may be advantages to purchasing business premises as part of your superannuation fund.

Disadvantages to ownership

One of the hurdles to purchasing of business space is the large cash injection that is typically required. The lender or mortgage company may also require a personal guarantee, which could put your home at risk in the event of business failure.

Naturally this could place additional pressure on your business and its cash flow; and not only at the point of purchase, since there will likely be fit-out and set-up costs to account for.

Cash flow is also less certain with ownership, as borrowing costs may be variable. The owner also retains responsibility for other variable costs such as rates and repairs.

Ownership may also present reduced flexibility if your business needs to relocate, upsize or downsize. If your business is specialised in its nature or operations, it may also be difficult to quickly sell a niche asset.

Finally, the injection of cash into a premises purchase can have an opportunity cost; it could reduce the potential for investment in other productive parts of your business. Small business owners need to question whether they should focus on their core business competencies instead of real estate ownership and fit-out.

For younger businesses and start-ups in particular, flexibility gained through a shorter-term lease may be preferable until the business is established.

Tax and structure

It is vital to understand all of the different tax and ownership structure implications before making financial decisions. Therefore you should consider engaging a licensed taxation accountant or financial planner to advise you where appropriate.

For example, the small business owner who purchases a business asset may be able to claim depreciation of fixtures and fittings, but when leasing assets the rental cost may instead attract a tax deduction in the financial year to which the cost relates.

Other assets

Different purchase or financing strategies may be appropriate for various business asset classes. For example, where the employees of a business use cars, a novated lease agreement between the business owner, employer and financier may offer flexibility for the employee, as well as reduce administration costs.

On the other hand, in the fast-moving world of information technology, a small business may choose to lease assets for shorter time periods, to reduce the risk of obsolescence since some IT equipment dates quickly.

Cash flow needs

The decision whether to rent or buy business assets will ultimately be decided by the type of business you operate and which method provides opportunities to optimise your cash flow.

Consider how and when your business assets will generate cash for you. As a rule of thumb, it does not make sense to finance an asset for a term longer than its useful economic life.

Also consider your cash flow. Do you have predictable and steadily consistent cash flow, or is your business subject to wide seasonal variations? Ideally you need to prepare detailed forecasts to compare scenarios and plan accordingly.

Choosing how and when to purchase assets are key financial decisions and expert advice should be thought.

By Peter Wargent  MYOB