The announcement of the Federal Budget and the measures to support business can provide direction and assistance for operators to plan ahead. Especially in regard to investing in new plant, machinery and equipment. But as the Treasurer pointed out in his Budget Speech, despite Australia’s remarkable recovery performance, challenges still remain. To assist businesses to grasp new opportunities and overcome current challenges, specific structured business and equipment finance is available at cheap rates.
Challenges continue to be faced as a result of global supply chain issues. A new outbreak of COVID-19 in China is looking likely created new issues around supply chains and the invasion of Ukraine poses serious concerns in many sectors. The computer chip shortage looks like continuing to cause delays in supplies into next year.
The recovery and clean-up from the NSW and Queensland flood emergency will be a massive process and will put further strain on building supplies and trades especially. Rising inflation is putting cash flow pressures on businesses and back pocket pressures on households.
The Federal Budget presents a level of relief immediately for some of these issues but some of the measures will have to wait until the Budget Bill passes both Houses before they can take effect. What doesn’t need to wait is securing cheap finance to implement business plans.
Targeted Business Finance
The most effective solutions to any problem or challenge are those that are specifically targeted to address the key need. When it comes to finance, that means tailored to suit the individual needs of the business in conjunction with addressing the purpose.
Different types of finance are required to address asset acquisitions and other needs of businesses. Jade Equipment Finance specialises in not only providing finance for plant, machinery and equipment but in solutions for general business requirements.
Solutions are tailored by our consultants to specifically meet either short-term issues or to take on the most challenging structural or longer term financial problems.
Asset Acquisition Loans
The Budget announced an extension of IAWO and that opens up the opportunity for eligible businesses to realise significant tax breaks with the purchase of new equipment. Upgrading equipment can deliver benefits in improved efficiency and productivity which will be realised over an extended period.
The selection of the appropriate finance product can be critical to realising the full extent of benefits to the business. In selecting equipment finance, business owners should consider their accounting method; financial objectives; treatment of their balance sheet; approach to GST; and other issues. These are the areas where loan types vary.
Chattel Mortgage is a versatile and flexible finance product which is best suited to IAWO. It can be used to purchase a wide range of equipment and as an added attraction, it has the lowest interest rate of the range of loan products.
Sometimes listed as Equipment Loan, this finance type allows for the ownership of the asset to immediately be transferred to the borrower. As such it is posted to that business’ balance sheet. With that in place, the asset is then depreciated in line with current ATO guidelines.
With IAWO, those guidelines allow for the entire purchase price to be fully tax deducted in the year the asset was acquired. Why is this significant? Because under normal depreciation rulings only a small percentage would be depreciated each year over multiple years. With IAWO, businesses can receive a much larger tax deduction to reduce taxable income and reduce tax payable.
If the structure of the business does not suit Chattel Mortgage, other forms of finance are available including Leasing, Commercial Hire Purchase and Rent-to-Buy. All business finance products include tax deductible elements.
General Support Finance
Not all needs of business relate to investments in new equipment. For some it is non-asset expenses or support to tide the business over during periods of cash flow shortages. To assist with these situations we can offer Secured and Unsecured Business Loans and Business Overdrafts.
As with asset finance, these are individually tailored and sourced from our vast lender panel with the cheapest interest rates. Purposes for these types of finance may be the cost of training or digital technologies in order to receive the Budget benefit of the 20% extra tax break.
Under this new measure, small businesses can receive $120 tax deduction for each $100 spent on upgrading digital capabilities, as per the criteria.
Interest Rates Outlook
The key consideration when taking on business finance is of course the interest rate. Over the past 2 years, Australia has enjoyed a historic low interest rate situation. As the RBA Governor has said on several occasions, lending rates are extremely accommodative. But that situation looks set to change with another milestone – the first increase in the cash rate for many years.
The RBA set targets for unemployment and inflation to be met before it would move on rates. Despite calls from many sectors over recent months for the central bank to act, the RBA has remained patient and kept the cash rate on hold.
It is looking increasingly likely that the RBA will act and raise the official rate in 2022. Such a move will flow through to lending sectors, resulting in a rise in equipment finance interest rates. While we focus on always achieving the cheapest rates available to meet individual requirements that is premised on what rates our lenders set for their individual markets.
To start solving those niggling financial issues in your business or to make a move to invest in new equipment to grow your business, start a conversation with one of our consultants about how we can support you with business and equipment finance solutions.
Speak with a Jade Equipment Finance consultant on 1300 000 003 to discuss business and equipment finance solutions
DISCLAIMER: IF MISINTERPRETATIONS, MISREPRESENTATION 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.