As your new business starts - or existing business expands you’ll no doubt consider buying a vehicle. This is a big purchasing decision and milestone in your business journey that can help boost your revenue and set you up for the future.
With any large asset purchase, there are a lot of important things to take into account before departing with your money, that’s why we’ve prepared our top 3 things to consider when buying a vehicle for your small business so you can proceed with confidence:
1. Will it suit my business needs?
It’s important to first create a list of your vehicle needs and wants before you start your buying journey. This list should form part of your business plan and be something you continue to update and revise as your small business grows.
If you’re a builder, electrician, rural producer or goods delivery service your entire business operations may well rely on your vehicle. In these cases, you may need storage space with a high roof, a secure and covered vehicle or plenty of room for tools and specialised equipment. On top of this, there may be foreseeable industry changes and vehicle specifications you’ll require in the future you’ll want to keep in mind. For example, if you’re a florist and plan on delivering to your customers in the Summer months interior refrigeration capabilities may be necessary for operations (add it to the essentials list!).
2. Motor vehicle operating costs
The full cost of a vehicle doesn’t end with the purchase, you’ll also need to account for the ongoing operating costs including insurance, roadside assistance, registration, repairs, servicing and weekly petrol. With the average monthly cost in 2020 of owning a small car at $928.64 and a 4WD wagon at $1804.61, these can add up to significant amounts over the vehicle lifetime impacting your cash flow.
By choosing to apply for a business car loan, (as opposed to an initial lump sum payment) you can enjoy the benefits that come with owning a car whilst simultaneously spreading out the cost of that vehicle over a longer period of time, easing your small business cash flow. To find out more on this and if it’s the right option for you check out our blog, ‘6 Benefits Of Buying A Car On Finance.’
3. Buying a car in your personal name vs business name
This decision will largely depend on what percentage of your car’s trips are likely to be used for business vs pleasure. If the car will be used exclusively for work then it makes sense for the business to buy the car. However, if you expect to use the car largely for school runs, beach getaways and shopping trips then it may be easier to claim the car’s business use as a personal tax deduction.
If obtaining car finance is the desirable option for funding your vehicle you can either use your personal credit to borrow money for your business or your business credit. However, the latter can be more advantageous because it helps build your business' creditworthiness and may allow you to deduct your vehicle sales tax.
For a full list of tax implications, we recommend checking out the ATO website and also consulting your accountant.
While the business vs. personal use question might seem trivial, it completely changes the lenders you will be eligible for, and in turn, the interest rate and monthly repayment you will receive.
Thankfully, Driva’s easy to use platform does the hard work for you, and will automatically show you your best rates from your commercial (or consumer) lenders that you’re eligible for.
If you have any queries please get in touch today with one of our commercial vehicle finance experts on 1300 755 494 and we can help find the best finance option for your small business, or if you’d like to get started now you can apply online using our simple platform here.