New Business Assets – Buy or Finance?

Need a new asset for your business? 

Chances are, you’re wondering whether it’s best to buy it outright, or finance it. 

Both ways provide advantages, but what it really comes down to is – which works best for your business?

We all know that cash flow is a major pain point in any business. This is especially the case if income and expenses fluctuate each month.

Financing an asset can provide you with several ways to help assist your cash flow – and sometimes provide longer term tax benefits.

Buying a Business Asset (no finance)

Buying outright means a fairly significant sum of money has been removed from the cash flow pipeline. 

It can take time to fill that hole you just left in your bank account – especially if that asset is a replacement and not a new income earner.  

However, you don’t incur any interest and you get the benefits here of claiming the GST input tax credits up front and depreciation (which can be up to 100% up front for Small Businesses).

Chattel Mortgage

Chattel mortgage is a business finance arrangement and the business owns the asset not the lender.  

Therefore, you can usually claim the GST input tax credits up front as well as claim the interest component of each payment.  

The term can vary (up to 7 years usually) but we recommend you match the term of the finance to the expected life of the asset to you.  

Chattel mortgages also allow you to put a balloon or residual payment at the end of that term.  This amount should be based on the estimated resale/trade-in value at the time the finance finishes.

Leasing a Business Asset

Under a lease arrangement, whether it is a novated lease for your team or you are leasing direct to the financier, the financier owns the asset. 

You are restricted to the rules set by the ATO on residual or balloon values. 

Novated leases can be a great way to help your employees reduce some of their tax as well as keeping them happy in a new vehicle and indentured to your business. 

If they leave your employment the salary sacrifice agreement ceases and the employee keeps the car. However, it’s up to them to re-arrange or payout their finance on the vehicle.

With novated leases you are very limited with providers, we can help refer you to a provider if you don’t already have one.

Which works best for your business?

Financing either by way of a Chattel mortgage or a lease can assist in keeping cash flow king.

The best way to work out what works best for you and how it will affect your business is to speak with your accountant. They will be able to show you the ins and outs.

Justin, our in-house finance broker, can help you find the best financier as well as the best rate. He has many years’ experience and will also be able to help work out the best term and residual based on the type of vehicle or asset you are purchasing.

Call and arrange an appointment to chat with Justin today to discuss your next purchase.

You might also be interested in...


Sign up for regular insights