In these uncertain times it might be easy to say that now is not the time to update or expand, but that would be to ignore the many benefits that this market holds for business operators.

Firstly, the reason why it is a good time to buy is that interest rates are at a 7 year low but unfortunately this bonus will not last much longer. Remember, with anything financed today, the rate is fixed for the term of the loan. In real terms what is the benefit to a business, let’s look at the below example:

• $100,000 asset funded over 60 months with a Nil balloon:

Monthly payments 12 at months ago at the high end of the rate scale would have been $2,226.60 to per month.

• Monthly payments on the same asset as at this year’s rate would be $2,083.69 per month. This drop will save business $142.91 for per month or $8,574.60 over the term of the finance period.

This type of saving across a range of assets will have a significant effect on the profits of most businesses.

The other reason why it is a great time to buy over the coming months (until 31 December 2009) is that the government will provide businesses with an additional 50 % tax deduction if you purchase capital equipment to the value of $1,000 or more if you are a Small Business. It is called the Investment Allowance Scheme and for those that were in business back in the 1970’s it is a rebirth of this policy.

How does it all work, let’s have a look at the below example:

XYZ Pty Ltd purchases a NEW truck for $120,000 plus GST and on road costs and takes delivery of this asset prior to the end of December 2009. XYZ Pty Ltd will be able to claim it’s normal tax deductions from this purchase and also a one off deduction of 50% of the value of this asset being $60,000.

Please note, the incentive/deduction is only being given if you purchase NEW or DEMONSTRATOR equipment and does not apply to used plant or motor vehicles.

Therefore, until 31 December 2009 there a range of advantages for buying new plant, equipment and motor vehicles, so if the old truck or excavator is costing a lot in down time or repairs now might be the time to update that asset and take advantage of the benefits the finance markets and government have on offer.

If you are considering making a purchase of plant and equipment but are worried about the credit crisis and whether you will be approved for the finance, below are a few tips to make the process simple and pain free:

• Make sure you have financials/tax returns completed for the year ending June 2008 and interim management accounts for the latest financial year ending June 30, 2009. Finance companies will not lend to you if they don’t know how the business has performed over the last 12 months.
  
  
• Ensure that all your current facilities are paid up to date. Lenders won’t lend more money to you if you are not meeting your current repayments.
  
  
• Diversify your liability position; don’t put all your eggs in the one basket. Call us on (02) 9532 0164 and obligation free discussion.

.Therefore, it is certainly not all doom and gloom it is a great time to update your plant and take advantage of low rates and government deductions.

Article by John Stapleton, Finance & Leasing Solutions
www.finleasesolutions.com.au

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