by Rob Chaloner
Deciding to purchase a company vehicle can be a big investment.
If buying a vehicle will impact your cash flow at present, commercial vehicle funding may be able to provide you with a better, flexible solution. Doing so gives you the assets needed for your business while diminishing the risk of experiencing cash flow problems.
Of course, buying the vehicle outright may give you the advantage of having the asset as your own. However, keep in mind that the value of commercial vehicles decreases over time so that owning them outright obliges you to fund that depreciation and take the risk of the fall in value.
If you would like to consider commercial vehicle funding, here are your options:
1. Business car loan
A business car loan enables you to buy the vehicle under your business name or your name, then you pay the lender fixed monthly repayments.
If you choose to take the loan under your business name, the lender may require a personal guarantee from the business owner to strengthen the application if the company finances are not that impressive just yet.
Some lenders require two years’ worth of cash flow statements and business tax returns as well as a formal business plan stating the reason/s for purchasing a car.
2. Novated lease
If you want to offer a vehicle to your employee as a salary package option, consider a novated lease. This type of lease is a three-way agreement between the lender, employer, and employee. It entails that you, the business owner, will lease a vehicle on behalf of your employee.
As the business owner, you are responsible for making monthly repayments and the money is then deducted from your employee’s before-tax dollars. This type of lease means that the employee will own the vehicle and not the company.
3. Chattel mortgage
With a chattel mortgage, the lender will give you cash to purchase the vehicle then takes the mortgage from you to serve as security.
The great thing about a chattel mortgage is that you take ownership of the car at the outset and enjoy no Goods and Services Tax (GST) on your residual payment. If you want to save on tax, this is a good option to consider as it can offer the most savings.
4. Commercial line of credit
If you need financing for more than a single vehicle, there are lenders that will allow you to use a business line of credit.
You can use it to lease or buy multiple vehicles to build your fleet. You don’t have to spend your time waiting for each vehicle to get approved as you’ll only need one approval for all units.
To qualify for this funding option, your business needs to have consistently high revenue and a strong credit report.
5. Finance lease
This type of funding option has all the benefits of a contract hire. But, this also means you have to take full responsibility for the liabilities of the vehicle. The vehicle will appear as an asset on your balance sheet and you have the option to renew or extend the contract with the leasing company – giving you flexibility.
Do note, however, that the finance lease facility is only available for business customers who require commercial vehicles but may not have the funds necessary to make purchases outright.
6. Heavy duty vehicle financing
This is an option if you want to buy large trucks or other heavy duty vehicles and have difficulty getting them through a typical car loan.
Like a commercial line of credit, you can use this facility to build your business fleet. Some of the usual requirements include your latest business bank statement (last three months), the most current audited financial statements, and other business documents. Additionally, your business must have been operating for at least two years and have consistently high revenue and strong credit to qualify.
7. Personal loan
Getting a personal loan gives you access to funds that you can use for different purposes.
Whether it’s for buying a car or for home improvements, this option is great if you plan to use the vehicle for personal and business use. But, be aware that personal loans can often come with higher interest rates and fees compared to other vehicle financing options.
No matter what your business situation, talk to your accountant or a financial advisor regarding what would be the right funding option for you.
Rob Chaloner is the Founder and Managing Director of Stratton, and is passionate about smarter ways to buy and finance cars. With Stratton, he's working to help Australian buyers disrupt the traditional car buying, financing and insurance markets through smarter products and online services.