Applying for finance is always a nervous process, and those who are self-employed feel this pressure as much as anyone. After all, juggling a business at the same time, which demands its own cash or financing means, can be a hard act to balance.
Self-employed people, be it business owners or sole traders, are often concerned about how lenders may perceive the nature of their work to receive finance – especially if income is unsteady.
However, many of these anxieties are often unfounded or blown out of proportion for self-employed business owners who run a legitimate business. In fact, these people often have more options at their disposal for car loans and need not necessarily worry about being rejected by a financier.
How will the car be used?
The first point to address is whether you, as a business owner, are purchasing the car for personal use, or business use. In the case of the former, the typical car loan process will follow, whereby you would be expected to demonstrate your ability to make repayments on the loan and ultimately repay it in entirety.
Some of the information which you would be expected to provide includes tax assessments and business activity statements, as well as bank statements or financial statements which outline assets, income, expenses and cash flow.
Is the car going to be used for business purposes?
If the car that you are looking to purchase will be used more than 50% of the time for business purposes, then you will be able to purchase the car through business arrangements. Accordingly, this opens up some other forms of financing that are intended for businesses.
One of these options is referred to as a chattel mortgage, which is essentially a mortgage over financed goods. A chattel mortgage is classed as a cash sale in that the goods automatically become yours on purchase and the finance company takes a mortgage over the chattels.
For tax purposes, you can claim depreciation, running costs and interest paid against your business income. The chattel mortgage allows businesses to claim the full input tax credit from GST incurred expenses immediately (next BAS statement).
The chattel mortgage is a flexible finance option, in that, you have the ability to either finance the full purchase price or alternatively, you can include an upfront deposit or trade-in to reduce your rental commitment.
A residual payment may also be placed at the end of the term (much like a lease residual) to represent the vehicle’s end value. Alternatively, you may choose to structure your rentals to clear the debt in full over the term of your agreement (fully amortised).
Are there other options?
While a chattel mortgage may be an initial route for business owners, they also have access to operating leases and commercial hire purchases.
An operating lease is an off-balance sheet leasing option with the future residual asset risk remaining with the leasing company. The product offers competitively priced passenger and light commercial vehicle leases, eliminates any maintenance risk and is tailored to match the vehicle usage.
Meanwhile, a commercial hire purchase is a particular type of finance used by businesses for the purpose of purchasing a new or used vehicle or other business equipment. A hire purchase is a similar agreement to that of a chattel mortgage, albeit the lender holds title of the security until all debt is repaid. There are also other tax benefits, as outlined in the link above.
The Fincar team is here to help you with all your financing needs. Contact us today to help arrange your next car or equipment loan.