The business finance sector is structured with a number of different loan types. These finance products, known as commercial finance facilities, are designed to suit different acquisition purposes, different business types and as such, have differing elements and benefits. This large range of options can cause confusion for business operators in deciding which way they should go with a particular purchase or purpose.
At Jade Finance, we offer businesses a wide range, an extensive portfolio of products so we have a solution to suit most businesses and most purposes. In our role as a finance broker, as differentiated from your financial advisor, it is not our key function to advise businesses on which product is best suited to their needs in most situations. Our role is to source the finance based on the brief provided. So we highly recommend that business owners and operators refer to their accountant or financial controller in making the decision as to which finance facility is right for them.
But to inform, educate and give you background to understand what’s on offer, we provide this overview of the differences in purchase, product and purpose in business finance.
Defining ‘Business’ Finance
The first issue to determine is whether or not you qualify for ‘business’ finance as opposed to ‘consumer’ finance or a personal loan. That is quite easy – you need to be a business and hold a current ABN in order to use commercial finance facilities.
This will include ABN holders, SMEs, sole traders, family businesses right up to the largest corporations. In addition to holding an ABN, some lenders will have specific requirements or guidelines for some loans for some businesses. Your Jade Finance consultant will explain these, if applicable.
Products, Purposes and Purchases
As a general differentiation, there are loan types for the purchase of goods and assets and finance facilities for other ‘non-tangible’ business purposes.
For the purchase and acquisition of a range of goods and assets such as cars, vehicles, trucks and all types of equipment, the loan types include:-
- Chattel Mortgage
- Commercial Hire Purchase
- Rent to Own
All these loan products are designed for the purchase of goods and while each has varying elements, the basic format is the lender holding the goods as security and the borrower repaying the loan at fixed monthly repayments over a fixed loan term.
- Accounting methods: Chattel mortgage and CHP are best suited to businesses that use a cash accounting method while leasing and rent to own more for those implementing the accruals accounting method.
- GST: With leasing and rent to own the repayments, GST is applied and claimable on the monthly repayments. With Chattel Mortgage and CHP the full GST of the purchase is claimed on the next BAS after purchase and no GST then charged on the monthly repayments. GST is not applicable to the interest portion.
- Tax deductions: With leasing and rent to own, the repayments are considered an operating expense and are tax deductible. With Chattel Mortgage and CHP, only the interest portion of the repayments is tax deductible.
- Balloon/residual/buyback: All these products include the option for a percentage of the purchase price to be deferred for payment at the end of the loan term.
- Balance sheet: Leasing and rent to own are ‘off balance sheet’ loans as the asset appears on the lender’s balance sheet and Chattel Mortgage and CHP are ‘on balance sheet’ products.
For more non-tangible purposes such as general operating finance during times of cash flow shortfalls; for some investment purposes; to cover costs of items such as services including consultancy, training, maintenance, some building and property works and similar requirements, Jade Finance offers:-
- Business Loans: these can be secured or unsecured depending on individual requirements and lender guidelines. Just to confuse the topic, in some instances, a business loan broker may be utilised for the purchase of goods. If used for non-tangible purchases, security may be required through property or by personal guarantee from the business owner. This type of loan is usually at a fixed interest rate and over a fixed loan term with a fixed repayment schedule.
- Business Overdraft: Jade Finance offers the service of arranging business overdrafts through non-bank lenders. These are most often used to cover short-term cash flow shortages. Sourced through one of our non-bank lenders, the structure and operation is similar to that of a bank overdraft except the finance is via a lender. The business only pays interest on the funds used, the interest rate is usually fixed as the overdraft limit. Lender fees and charges apply.
Specialist Funding Options
Jade Finance also offers specialist finance for specific purposes:-
- Insurance Premium Funding: allowing businesses to pay off large insurance premiums in quarterly or half-yearly payments rather than one large annual payment.
- Debtor Invoice Funding: designed for businesses with customers that pay over a long term and the business requires more timely payment.
Sourcing Business Loans
Jade Finance offers a large range of finance solutions to suit many of the requirements of different sizes and types of businesses. Your Jade consultant will handle most of the aspects of the loan process based on your requirements.
We hope this provides you with a greater understanding of the business finance market and we encourage you to consult with your accountant on specific loans.
For a loan or finance facility for your business please feel free to contact Jade Finance on 1300 000 008 for a confidential initial discussion.
DISCLAIMER: THE PURPOSE OF THE INFORMATION PRESENTED IS FOR GENERAL INFORMATION AND NOT INTENDED AS FINANCIAL ADVICE AND SHOULD NOT BE USED AS THE SOLE SOURCE FOR MAKING FINANCIAL OR PURCHASE DECISIONS. THOSE WHO FEEL THEY REQUIRE ADDITIONAL GUIDANCE SHOULD SEEK OUT THE ASSISTANCE OF AN INDEPENDENT, PROFESSIONAL FINANCIAL ADVISOR. ALL DETAILS, INFORMATION, FACTS AND SPECS IN REGARD TO GOODS AND SERVICES AND IN REGARD TO GOVERNMENT POLICIES AND MEASURES HAVE BEEN SOURCED DIRECTLY FROM RESOURCES IN THE PUBLIC DOMAIN. NO LIABILITY IS ACCEPTED IN REGARD TO THE PRESENTATION OR THE INTERPRETATION OF THIS INFORMATION. IF INDIVIDUALS REQUIRE VERIFICATION, WE ADVISE THEM TO REFER TO THE THIRD PARTY RESOURCE.