There are a number of items to consider when structuring an equipment or asset purchase loan for your business. Of most importance are the following:
Term
Term will generally be from a minimum of 12 months to 5 years. Some lenders will consider terms up to 7years. This will largely depend on the asset being funded and the applicant’s financial situation. Individual repayments over shorter terms will be higher, however total interest payable would be less. Conversely, longer terms result in lower repayments but higher total interest.
Repayment Frequency
Loans can be structured to suit your business’ cashflow – e.g., seasonal payments for farming enterprises. Repayments can be structured quarterly, half yearly, or yearly; or other intervals for businesses which have income concentrated at specific times of year.
GST
GST can be structured into loans as an added payment to coincide with the GST credit (or offset) in the BAS lodgment immediately following the asset purchase. This would naturally reduce the individual payments for the remainder of the loan term, as less interest is being charged.
Balloon Payments
A payment at the end of the loan term will ensure the interval payments throughout the loan term are reduced. Naturally total interest content is higher. This option gives the borrower the ability to better manage cash flow. Balloon payments will generally only be allowed for newer, primary assets, where the value of the asset at the end of the loan term is likely to be evident (usually based on guidelines from the Australian Taxation Office).
Thinking about how to structure your loan essentially comes down to knowing your options and aligning what you can manage with your business objectives. There is a plethora of lenders who can tailor loan options to suit your needs and better understanding these options will help ensure your business objectives are being fulfilled.
If you are interested in discussing your Equipment Finance options, contact us today!
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DISCLAIMER: The above content is to provide general information and does not constitute financial, legal or other advice. This means that duties and requirements imposed on people who give financial advice do not apply to this content. For advice contact your accountant or legal advisor.