BDH Leaders work with a variety of experts to give our clients holistic financial advice.
In this article, Sharon Lewis, finance broker and Director of Commercial and Mortgages at Designer Financial Services explores different types of commercial and residential finance currently popular with individuals and small to medium sized businesses.
This is a great time to consider upgrading your home, buying your next investment property, securing premises for your business or refinancing existing debt. Record low interest rates have given rise to some fantastic fixed rate offers on both residential and commercial loans. Residential fixed rates from 1.79% and commercial fixed rates from 2.45% are currently available. You could save thousands of dollars each year just by reviewing your current loans and looking for a better option.
The term commercial or business finance encompasses a range of financial products and loans that assist growing businesses. Funding is available for many purposes including acquiring and fitting out new premises, managing cash flow and hiring new staff.
The purpose of the additional funds generally determines the type of finance product suitable for your business. Four common types of commercial finance available to small and medium sized businesses are discussed here:
Asset finance is probably the most widely known type of finance. It’s used to help businesses acquire the equipment they need to expand their operations. This type of finance can be beneficial for a business’ cash flow because instead of making a large capital outlay for plant and equipment, the business simply makes regular payments to the finance provider for the use of the asset. The asset may become the property of the business over time, depending on the type of asset finance chosen. You can also take advantage of the instant asset write-off incentives currently available.
Chattel mortgages can be used to purchase movable assets such as motor vehicles and other plant and equipment. Typically, repayments are made over a 1-7 year period. The borrowing costs of chattel mortgages are generally lower than for asset finance as the loan is secured on the asset purchased. The borrowing costs are generally tax deductible and if your business is registered for GST, you may be able to claim input credits for the GST component included in the original purchase price of the asset. Your BDH Leaders’ accountant will be able to advise you on this.
Cash flow finance can be beneficial for rapidly growing businesses or businesses that have secured a few large orders at the same time. This type of finance is designed to avoid “cash flow crunches” – an expression used to describe a situation where outgoings are greater than incomings for a short period of time.
Typically, cash flow finance is used to bridge the gap between supplying the goods or services and receiving payment from your customer.
According to research conducted by Xero, a cloud accounting software provider, one-quarter of Australian small businesses would struggle to survive for a month if all their outstanding invoices remained unpaid, while 15% would be unable to meet their staff salary or super obligations.
Invoice finance products allow businesses to borrow money against the invoiced amounts due from customers to aid cash flow and assist with operating costs on a short-term basis.
As mentioned earlier, it’s a perfect time to review your current loans and finance products – especially if you haven’t done so for a while. Or you may wish to discuss expansion plans or new equipment purchases with us to make the most of low interest rates and the current instant asset write off tax benefit. This is currently legislated to 30 June 2022 but it is expected to be extended in the until 30 June 2023 once the current Federal Budget measures are passed into law.
Sharon Lewis from Designer Financial Services can help you find the right finance product for your situation. You can contact Sharon by calling 0437 0529 05 or emailing email@example.com. Alternatively, you can get in touch with us and ask for an introduction to Sharon.
Sharon Lewis is a credit representative (499930) of QED Credit Services Pty Limited ACN 147 272 295 (Australian Credit License 3878560).