Asset Finance for Medical Practitioners
When preparing tax returns we see that too many medical practitioners are not choosing the right type of asset finance.
For this reason we urge you to get advice in this area instead of using the sales team at the point of purchase, or the local bank. The time and money you will save may be better used to invest in your business.
Getting the right finance can also reduce the risk of owning obsolete equipment in your practice at the end of the period. Using tax effective finance for vehicles for business and personal use to larger items such as diagnostic equipment or a practice fit-out has a different outcome depending on rate and the asset and ownership structures. When financing equipment such as furniture and technology for medical practices it is not just about rate.
§ How much capital do I need to grow my practice?
§ When do I need to smooth out the bumps in my cash flow?
§ What are the tax outcomes of asset financing?
§ How long will I need the equipment and will I need to upgrade it?
§ Is technology rapidly changing in my industry?
§ Do I want to 'finance to own' or 'finance to return' my asset?
Generally speaking, asset finance options include: Commercial Hire Purchases; Financial and Operating Leases; Chattel Mortgages; Novated Leases; and Technology Rentals. Each is suited to different commercial circumstances, so when considering your options, you may want to talk to your accountant or tax advisor. Below is an introduction to these main types of asset finance.
COMMERCIAL HIRE PURCHASE
With this type of finance, you hire and use the asset until the last payment. When you make the final instalment, title of the asset transfers to you. You can tailor payment options, including the loan period, a deposit and a larger final balloon payment. To help manage your cash flow, structured payments can be established according to your cash flow.
Chattel Mortgages are a popular finance solution where you own the asset from the outset and your loan agreement is secured by the asset. You can tailor your loan payments by choosing the term - typically up to five years. Other payment options can include a deposit and a larger final instalment. You can also structure payments to free up cash flow at the times of year you need it most.
With a Finance Lease, the financier owns the asset however you bear the risk of disposal (of the asset) at the end of lease. This type of lease can benefit businesses that need the latest vehicles or equipment without tying up a large amount of capital. You can choose lease payments in advance or arrears and terms up to five years. A residual value is required in line with the asset's use and the Australian Taxation Office's guidelines.
If you want to include a vehicle in your salary package, a Novated Lease can help. The financier owns the asset, while you and your employer sign a novation agreement to share the responsibilities of the loan. Typically loan terms are from 12 months to 5 years. Monthly lease payments and a final residual payment are based on your circumstances and guidelines set by the Australian Taxation Office. If you are an employed practitioner and interested in a Novated Lease, talk to your HR department first to determine what options your employer may offer and then contact us for advice on any queries you may have. If you are in practice for yourself talk to us on the best way to salary package your vehicle whether that be through your medical practice company or trust. We can also put you in contact with the right people to secure a good rate and the correct financing option specific for your circumstances.
Operating Leases can be used to fund a number of different assets. Payments towards this type of finance
can be considered operating costs and will not appear as a liability on your balance sheet: You can reduce the risk of owning obsolete equipment.
FLEET OPERATING LEASE
With this type of finance, the financier owns the vehicle and the client returns it at the end of the term, usually from 12 months to 5 years. When leasing a vehicle, the fixed monthly payments typically cover registration, insurance, tyres and scheduled servicing and maintenance. For a small business, a Fleet Operating Lease can help free up time and resources.
TECHNOLOGY RENTALS / LEASE
Technology can change quickly and often the large up-front costs of purchasing the latest equipment will make a big dent in your cash flow. Renting rather than owning technology can help reduce the risk of owning obsolete equipment while preserving cash to grow your business. Similar to a Fleet Lease, the financier owns the equipment and the client returns it at the end of the term, usually within 3 years. The term and payment frequency of rental agreements can often be adjusted to meet a company's budget and unique business requirements.
There are a range of different forms of commercial loans and leases available in the market and these are
governed by certain conditions and circumstances, which may exclude you. If you do not have a medical finance broker or specialist medical banker, we have contacts within our network that we already work closely with that can help you. If you would like to get an introduction let us know and we can introduce you to the right people.
If you are considering finance for your medical or dental practice make sure you talk to us today.