Tradies are the nuts and bolts of Australia’s workforce (pun intended). According to Safe Work Australia, they make up 30% of all employed people, pumping billions of dollars into the Australian economy. Many run their own businesses, are self-employed or are sole contractors. So, what does this mean when looking for a business loan?
As a tradie, your business heavily relies on having the right equipment and the right vehicle. These can be breath-takingly expensive, especially if you’re just starting out. Cashflow can be an added challenge while you’re waiting on payments from clients and contractors. Instead of dipping into your savings to cover these expenses, there are smarter alternative ways of financing your business, leaving you with more capital to finance operations and expand your business.
At Loan Options, our AI comparison tool helps you compare the different types of business loans relevant to your finances. Let’s take a look at the more common ones.
Whether you’re looking at buying a forklift, a new angle grinder or retrofitting a DMC DeLorean with a flux capacitor, an equipment loan is a really effective way to finance business purchases. There are lots of benefits to an equipment loan:
- No upfront deposit
Unlike other types of loans, the asset serves as security for the loan, so there’s no deposit needed. The only hitch is that if you can’t repay the debt in the agreed time period, the lender may repossess the asset.
Usually both the interest you pay on the loan and the depreciation of the equipment is tax-deductible, meaning more cash to spend on your business.
- You own the asset straight up
From the moment you sign on the dotted line you get immediate ownership of the equipment, meaning you can start using it immediately.
- Easy repayment schemes
Equipment loans often have flexible repayment schemes to suit different cash flows. This means you get more choice on repayment terms.
- Covers a broad range of products
Equipment loans often don’t just cover tools and heavy machinery, but also can cover all commercial vehicles, agricultural equipment as well as computers and fit outs.
Other ways to finance equipment
If you want to have the latest equipment but really need to preserve your cash, there are other, cheaper ways of going about it.
- A finance leases
The obvious downside of this is that you don’t own the equipment, the lender does. The asset is leased to you for an agreed time period and the payments are tax deductible. The upside is that the payments are much cheaper than a loan, giving you more cash to play with.
- A hire purchase
This is a good one when you want to own the equipment but don’t want to pay a lot of cash. Under a hire purchase agreement, the bank buys the equipment or vehicle and rents it to you for an agreed time period. Interest rates are often fixed and are tax deductible. At the end of the agreement the asset belongs to you.
We know that your vehicle is essential to your work and choosing the right one is an important decision. If you’re looking at buying a car or ute for your business, there are a few different options available:
- A standard car loan
This is the same as a consumer car loan where the car serves as collateral for the loan. This is a good option if your vehicle will be mostly used for leisure.
- An equipment loan
Oftentimes lenders will cover cars and other vehicles under equipment loans, mentioned above. These are better if you’re using the vehicle mostly for work purposes.
- Chattel mortgage
‘Chattel’ is a super old word meaning a moveable object that you own. It has the fixed rate of a mortgage, with the vehicle held in security. Interests rates are usually lower and can often be claimed on tax.
- Both finance leases and hire purchases are options when looking for work vehicles as well.
Business loans? I hear you ask - aren’t they the same as equipment loans? Well not quite. You can use a business loan to buy equipment, but it can also be used for so much more. They can be used for all sorts of general business expenses and are helpful for dealing with cash flow issues. This can be especially convenient if you are just starting your business, have large upfront expenses and a limited client base. Business loans generally come in two types:
Like other traditional loans, lenders will take property or another asset as security for the loan. Interest rates tend to be lower and the amount of money you can borrow tends to be higher.
Unlike a secured loan you don’t need to put up any collateral. As this means greater risk to the lender, interest rates tend to be higher and you can’t borrow as much. You also will need to prove that your business is viable and has existed for a certain period of time by providing financial data.
So, you’ve made it to the bottom of the page and still don’t know what the best option is? Give us a call and we’ll walk you step by step through which lenders and financial options are best for your business and your wallet.