The ins and outs of vehicle finance

What you need to know about finance for your work vehicle

How you choose to finance a vehicle really depends on your business needs. Then there is the new versus secondhand debate and the hidden costs of not upgrading. So how can you decide what will work best for your business?

First let’s weigh up the options: Lease, loan or hire purchase?

First up Lease or Finance Lease

If you don’t have ready-cash, leasing may be a good route to travel. A lease could allow you to have the new vehicle of your dreams while tailoring your payments to suit your cash flow.

Lease, loan or hire purchase?

“Many businesses find leasing helpful because it smooths out your capital outlay over a period of time, most commonly three, four or five years,” says Dayne Jamieson, Specialised Banking Executive, Equipment Finance at NAB. “Predictable monthly repayments can give you better control of your cash flow and repayments can be tailored to your cash flow cycle. For example, if you have a seasonal business, NAB can structure your lease so you pay very little, or even nothing, in your quiet months and then make this up in your busier times.”

It’s also important to match the lease term to its planned use – there’s no point signing on to a five-year lease if you intend on upgrading your vehicle again in three years’ time. Leases are also available through a variety of providers. You could ask your bank to buy the equipment slash vehicle on your behalf and then you lease the vehicle through them or you can lease directly from a retailer or dealer. Before you sign on the dotted line though, be sure to check the cash price elsewhere, as it may be more viable to take out an equipment loan.

 

 

What is an equipment loan?

This works in a similar way to a standard loan in that you own the equipment and the bank holds a mortgage on it.  Some of the benefits of an equipment loan are that you may be entitled to claim GST as an input tax credit and just like leasing, repayments can be structured to suit your cash flow. Generally speaking, the vehicle or equipment itself is used to secure the loan.   This is the most popular way that businesses now purchase income earning assets.

Hire purchase – a different way to own

Your grandparents are probably very familiar with hire purchase – before the days when credit cards were ubiquitous it was the most common way to purchase expensive items. The benefit of hire purchase is that an asset can be bought on your behalf by your financier and then it is hired to your business for an agreed time. Once the period is over you own the asset. As with any form of financing, there are advantages. With no deposit required on a hire purchase, your capital stays in your business and can be used for other purposes if required. Generally, the interest portion of the repayment is a tax deduction and at your final payment, you know the asset is yours to keep, sell or trade-in.

New vs secondhand

Should you buy a new vehicle or go for a cheaper secondhand option? It’s the age old question. If you are considering a secondhand car, bus, trailer or truck for your business then it’s important that you take into consideration the quality of the vehicle build and compliance specifications. Vehicles that are used in the transport and logistics industry have very specific requirements in terms of loading, emissions and environmental standards: you need to be certain any second hand vehicle fits the bill.

It’s also important to consider warranties and the reliability of a secondhand purchase. Depending on the age and mileage of a vehicle it may need major mechanical repairs in the future which could see you considerably out of pocket. It is important to factor these expenses in and consider the impact repairs could also have on your cash flow if your secondhand vehicle was off the road. 

Do you really need a new vehicle?

If your fleet of vehicles is running relatively smoothly and repairs are at a minimum do you really need to consider purchasing new vehicles? According to Colin Lear from Tasty Trucks, the answer is likely to be yes.

Founded in 1989, Lear’s mobile canteen business has around $10 million worth of trucks on the road every day and serves food to 28,000 customers in Sydney and Melbourne daily. The vans operate out of business car parks selling lunch and other meals to workers before moving on to the next location.

“If you’ve got a nice, new, shiny van that looks right, you’ll actually have better sales from it,” Lear says.  Lear operates a continually renewing fleet at his Tasty Trucks business to ensure strong sales and lower maintenance costs. He says he likes to think of it as retail rental costs and suggests purchasing a new van is not dissimilar to refurbishing a traditional brick and mortar outlet.

While other food truck vendors might hold off on upgrading their vehicles Lear suggests failing to upgrade can be a costly mistake.

“It costs them a fortune in maintenance and no doubt it costs them heaps in lost sales,” he says.

To find out more visit nab.com.au/business/loans-and-finance/vehicle-or-equipment

The information provided in this article is intended to be of a general nature only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on the information in this article, National Australia Bank Limited (ABN 12 004 044 937, AFSL and Australian Credit License 230686) (NAB) recommends you consider whether it is appropriate for your objectives, financial situation and needs. NAB recommends that you seek independent advice before acting on any information in this article.

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Cec is the managing editor of KBB. She is a multimedia professional with over fifteen years experience as an editor on titles as diverse as SX, CULT, Better Pictures, Total Rock, MTV, fasterlouder, mynikonlife and Fantastic Living. She has spent the past four years working as a news journalist covering all the issues that matter in the political, health and LGBTIQ arena. She is the Head of Content at Pinstripe Media and a recent convert to the world of small business.

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