The decision by the Board of the Reserve Bank (RBA) to lift interest rates in its May meeting will have left many operators in a dilemma regarding new acquisitions with equipment finance. Stressing the importance of driving inflation down in a shorter timeframe, the Board decided to increase the cash rate for the 11th time since May 2022 by a further 0.25%.
The significance of the poor timing and the amount is sure not to be lost on business owners currently planning, arranging or even finalising new plant, machinery and equipment acquisitions before the end of the financial year.
After a hold in rates for April and many in the markets expecting a further hold, they are now facing an additional rate hike. An increase may increase the rate of finance and repayment and throw doubt over the viability of proceeding as planned.
Many business owners will be facing tough decisions over whether or not they continue with the purchase plans or defer acquisitions to possibly next year. One of the major drivers for investing in new equipment is the looming 30 June date – the deadline for getting available tax deductions in place for this financial year.
A further incentive is an opportunity to realise even larger tax deductions this year with temporary full expensing. And it's the last chance for this accelerated asset depreciation measure as it will no longer be available after 30 June unless the Government extends the measure in the upcoming Federal Budget. That is not looking likely but could never be ruled out.
But now, with this latest rate rise, the tax benefits may not be attractive enough with the prospect of even higher rates on equipment finance. After the latest rate rise, operators seeking better equipment finance rates can look to Jade Equipment Finance for better rates and cost-effective solutions.
Sourcing Better Interest Rates
While structure, term and any special conditions can be extremely significant to the viability of a commercial loan, the interest rate is key to the cost. The interest rate decisions by the RBA will have flow-on effects through lending markets, including commercial finance sectors. So, with the latest decision, there is the possibility that rate increases will be seen from some lenders.
In this regard, we can't give a blanket comment, as banks and lenders in the equipment finance market make their own decisions based on their analysts' guidelines and forecasts. Lenders expecting further rate rises may have already priced those expectations into their rates before the RBA May decision.
However, those that expected a rate hold may need to increase their rates. Others may keep their own rates steady to maintain a competitive edge. The challenge for business operators seeking finance is knowing where to look for the cheapest rates.
Many non-bank lenders are not widely known or easily accessed directly by business owners. They work exclusively via a broker network. Our vast selection of both banks and non-bank lenders provides our customers access to more options and the opportunity to easily access lenders offering the cheapest rates.
The Equipment Finance best rates advertised will typically be offered to businesses with a good credit rating and full documentation for the application. But we can achieve workable rates for those requiring Low Doc and No Doc finance.
Finance Products that Work with Objectives
Cost-effective finance is a loan that will work with the individual objectives of the business. Operators have a choice of equipment finance products: -
- Chattel Mortgage Rates
- Leasing
- Rent to Own
- Commercial Hire Purchase
They differ regarding the approach to the balance sheet; tax deductions; compatibility with accounting methods; and interest rate. Speaking with the business accountant can assist operators in deciding as to which finance product will deliver the best outcome for their business.
Maximising Tax Benefits of Equipment Finance
With interest rates increased by the RBA 11 times over 13 months, other aspects of finance should be considered to achieve a cost-effective outcome. Tax deductions may significantly affect the affordability and cost of finance.
Still available for those that can act quickly to finalise acquisitions is temporary full expensing. This measure allows for the full purchase price of the asset to be deducted in the same year as a purchase rather than depreciating in smaller amounts over several years.
While the depreciation value would be the same, achieving the larger deduction now may reduce tax payable this financial year and represent an advantage. Chattel Mortgage is considered the most suitable form of finance to utilise this tax measure.
Structuring Equipment Finance
Higher rates can mean higher repayments. But when engaging with us, we work to negotiate the most suitable loan term, balloon and loan conditions to deliver a workable monthly commitment. Achieving a repayment level that does not pressure cash flow may make the acquisition a viable option despite the recent rate increase.
To see how this could work for your planned acquisitions, use our Equipment finance calculator.
Getting Approved for Equipment Finance
Sourcing cost-effective equipment finance that supports the business objectives and allows for growth and productivity gains does not have to be a time-consuming and challenging task. Our broker-style lender services enable operators to secure the finance they need at better rates without those challenges.
The RBA has indicated that further rate increases may be required. But the benefits offered by pre-EOFY acquisitions may be strong incentives to proceed as planned with purchases at this time. Please speak with us about how we can assist you in achieving your objectives.
Contact Jade Equipment Finance on 1300 000 003 to discuss achieving cost-effective equipment finance.
DISCLAIMER: IF MISINTERPRETATIONS, MISREPRESENTATIONS OR ERRORS EXIST IN THIS ARTICLE, NO LIABILITY IS ACCEPTED. THE INFORMATION IS PROVIDED ONLY FOR GENERAL PURPOSES AND NOT IN ANY MANNER INTENDED AS THE ONLY SOURCE FOR MAKING FINANCIAL DECISIONS. THOSE THAT CONSIDER THEY REQUIRE ADDITIONAL GUIDANCE OR ADVICE SHOULD REFER TO AN INDEPENDENT FINANCIAL ADVISOR.
