There are a number of Australian lenders and car dealers that offer multiple small business vehicle financing options. Generally, business car loans are available with flexible options and can also provide tax benefits.
Business car loans
Applying for a car loan in a business name is simple and may be done online. You will have to provide income and trading history of your business, which allows the lenders to determine your eligibility for small business car finance. You may repay the borrowed amount through periodic instalments over an agreed period. Alternatively, you may opt for smaller repayments initially and a lump sum payment at the end of the loan duration. You may claim interest as a tax deduction as long as the car is used for business purposes.
Chattel mortgages
Chattel mortgages are secured car loans for business use that are repaid over a fixed term. The car is used as security, which means you cannot sell it before the end of the contract. Some lenders may allow repayment based on the cash flows of your business while others may offer fixed equal instalments payable over the loan duration.
Commercial hire purchase
This is similar to financing a vehicle through a business car loan, which is repaid in fixed instalments. The lender will purchase the car and hire it back to your business until the borrowed amount is repaid. However, you will need to pay a certain upfront deposit. Once all the instalments are paid, the car ownership is transferred in your name.
Finance lease
The financing company buys the vehicle and leases it to you for a fixed period. At the end of the lease term, you can pay the residual value and assume ownership, refinance the lease, or trade the car. While financing a car for business use with this option, the payment is fixed and is not affected by inflation.
Operating lease
Unlike the finance lease that allows you to take ownership of the car by paying the residual value, the lender will take back the vehicle at the end of the operating lease term. Generally, operating and maintenance costs are included in the lease amount, which may make it slightly more expensive but is generally more convenient for financing a car through your business.
Novated lease
This is a tripartite agreement that allows your employees to buy a car using their pre-tax incomes. The employer arranges for the repayment to be deducted from the employees’ salaries, which decreases their taxable incomes.
How to decide on the best business car loan?
With several options to finance a business vehicle, ask yourself some questions, like whether you want to retain ownership, what the primary use of the car is, and what the situation of your business is. For example, if you want to retain ownership, a finance lease is not the right option. Similarly, novated lease is available only to employees and if you are a sole trader, financing a car through a business with this option is not an option.
Considering the tax implications is also important as the deductions vary for every option. A chattel mortgage allows depreciation and interest as tax deductions, while you may be able to claim the entire amount if you opt for a finance lease.
Understand the business car loan requirements before applying to ensure a quick and seamless process. Finally, don’t forget to compare various car loan options to find the best way to finance a car through a business.
