As someone who runs a small business or as an entrepreneur, you may wonder how your car contributes to the bottom line. If your car is a performing asset, i.e, something you buy to help your business make money, you should look at financing it from a business perspective. But where does a business start looking?
Figure out if you qualify
Any business car loan must qualify first. If you or your business intends to use the car for business purposes 50% or more of the time, it qualifies for a business car loan.
The premier car loan for business – chattel mortgages
A chattel mortgage is the most common type of business loan you can apply for in the market place. Explained simply, a chattel mortgage is a type of secured loan (“chattel” is another word for “property”) applied to a car. Because your loan is secured against the car, lenders pass on savings due to the lower risk it represents. Another similar type of loan is called a hire purchase. This means your lender or bank is owns the car until the loan is paid off. With a chattel mortgage, your business takes ownership of the car immediately.
Chattel mortgages can be cash flow neutral
For most businesses, chattel mortgage is an attractive product because you can finance 100% of the purchase price. This is good for business, because you won’t have to spend any money up front, thus preserving your cash flow. If the car makes you money in the medium to long term, this can be used to grow your business. Some lenders may permit you to pay off the loan according to seasonal cash flow.
You can finance more than 100% of the car’s value. You could amortise insurance premiums or scheduled servicing in that amount.
Chattel mortgages are customisable
Usual consumer car loans last for five years. With a chattel mortgage, you can choose your own loan term options. These usually range from 12 months to as long as seven years. You can also incorporate a balloon payment, also known as a residual value payment, into the loan. This is a lump sum due at the end of the loan.
This does lower your regular payments, but you must be mindful that you must pay that sum when your term is up.
Chattel mortgages have tax advantages
Since you’re buying a car for business, you can claim the GST you paid on the car on your next BAS statement. You can also claim depreciation, the fuel input tax credit and interest paid as well.
To explore how you can save on tax with a chattel mortgage, you should always consult a financial professional first.