As a small business owner you face a mountain of decisions every day. Not the least of these is whether to rent, hire or buy that new vehicle or equipment you have your eye on. JAN WATMAN simplifies some of the borrowing options available to you and your business.

As a business owner you need to consider; the amount you are borrowing, if the item you are borrowing for is new or used, the tax effectiveness of the loan and whether it is a long-term investment or something required for a specific project or contract.

Let’s look at the different finance options:

Hire – this is when you hire the piece of equipment for the period of time you need it. A bond maybe required and this option is better for short-term use.

Hire Purchase – this is similar to a hire, except you will own the equipment at the end of your agreement, with repayments tailored to suit your business needs. At any time you can choose to purchase the equipment outright, but can only claim the interest component of the repayments and the depreciation on the assets.

Lease – a lease is similar to equipment rental although the contract is generally between two and five years. Repayments are fixed, so it can be beneficial if you know you will need a piece of equipment for up to five years.

Chattel Mortgage – this is where you borrow funds to purchase a piece of equipment. The lender registers its interest in the equipment with the Personal Property Securities Register and takes a ‘mortgage’ over the equipment as security. Contracts can range from one to five years in length, with the interest payments able to be claimed on tax.

Rent to Own – this is an equipment rental agreement that generally runs for a set period of time such as 12 months. The fixed repayments are often fully tax deductible and in some cases, rebates are given to customers when purchasing equipment outright. Along with the ownership option, equipment rentals may be returned to the financier after the initial term, and in some cases with no penalties (but always check these details, as rental options vary from one provider to another). These options are perfect for you if you want flexibility, and you won’t be stuck with the same equipment for years.

If you are a start-up enterprise or expanding an existing business it is worth doing your homework to find out which finance option best meets the needs of your business.

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