SOME of the biggest capital outlays we face in the cargo and logistics industry is updating or getting new equipment. With hygiene and biosecurity becoming a high priority due to the global pandemic, investment in state-of-the-art equipment is a must. You may think this requires extensive capital outlay. With tax incentives and business finance readily available at record low interest rates, your business can get the equipment it needs without draining the cash reserves.
Keep on top of seasonal demand with leasing
Leasing equipment for increased shipping volumes – particularly around Christmas – is often practical. It can allow access to needed equipment without being tied into long-term loans for equipment that is essentially seasonal in nature. An operating lease gives you use of equipment for a set pre-agreed period. It also has the flexibility of term extensions, a trade-in for new equipment, or to return it to the vendor. Finance leases are similar but give your business an opportunity to purchase the equipment by paying out the residual value. Leasing is counted as an operating expense and can be used as a tax deduction.
Purchase outright for long term use
For long-term use of equipment such as ship-to-shore cranes, straddle carriers, or shipping containers your business may want to purchase the equipment outright. You can finance more than the entire cost of the equipment using a chattel mortgage or hire purchase. Both types of loans are functionally the same – paying off a balance until it reaches zero – but differ in where the equipment shows up on your accounting.
A chattel mortgage means you take ownership immediately; a hire purchase defers ownership until after the loan is paid off. This means hire purchases treat repayments as operating expenses, not asset repayments. These types of loans are cash flow neutral solutions that can help your business get moving again with the latest equipment. It can also unlock further capital to pay for additional long-term liabilities such as insurance or training costs.
Tax incentives and savings
With all types of business oriented loans, you can take advantage of tax breaks and savings such as writing off interest paid, GST paid, depreciation (in chattel mortgages), and fuel input tax credits if you are financing vehicles. Until 31 December 2020, your business can write-off $150,000 in business purchases instantly (gross vehicle mass limits apply; read more here).
Need credit to tide over slower months?
Due to lower shipping volumes and COVID-19 restrictions by government, supply chains are seeing lower efficiency and higher backlogs. This can cause delays in generating cash flow, as some businesses see reduction in capacity or outright closures. Funding is still available as unsecured business loans. Deferrals and other government stimulus such as guaranteeing unsecured loans up to $250,000 for three-year terms with a six month repayment deferral. This can be a lifeline as we navigate out of the pandemic period and into recovery. From 1 October 2020, businesses will be able to take advantage of $1 million loans over five years. The six-month deferral may be available at the discretion of the lender. A good broker that you develop a favourable relationship with can be worth their weight in gold. It really does pay to have an expert in your corner.
Bill Tsouvalas, business finance expert and CEO/managing director of Savvy