loans

[jmack]

morning everyone, do any of you have experience on loans from banks for operating expense and or equipment purchases, any advice is helpful, thankyou j.

 

[ATH]

It all depends on how much you want to borrow, and how long you want the term to be. Credit score obviously plays a huge role as well.

It helps a LOT if you show up at your appointment with a good business plan showing a realistic scinero plan for paying it off. Show a few different cash flows. One, being most optomistic, another with "I should at least be able to make this" and one in the middle.

If you are are in need of a relatively short term loan for a relatively small amount, consider a line of credit (credit card). Interest rates will be higher than standard loans...but there are no closing costs.(a 'normal' decent rate for LOC is around prime + 2% or so).

 

[soutz]

yep. keep those loans to a minimum.stress makes your head do funny things and as a climber and owner you need to keep your eyes on the prize.

 

[Ekka]

Jmack

Here's the things with loans and tax.

You can only claim the interest portion of the repayment, this can be either calculated or provided by the lender.

You can claim depreciation of what you bought, the rate varies I suppose depending on what you bought and what the tax office write off is on it.

For example, $50K chipper, they might only allow 20% depreciation per year (and pro rata thereof so buy it in the beginning of a financial year not the end).

So your depreciation would be $10K

But your payments might be $1000 a month of which interest is only $400.

Now the accountants will think this is a good deal, watch how it works.

You deduct $10k off your turnover for depreciation
You deduct $4800 off your turnover for interest.

So your account would say, hey man, you get almost $15K of deduction whilst your repayments are only $12K.

But, behind the scenes a little evil lurks.

You have to find the $1000 a month that you never did before, this eats into your cashflow. If times get quiet etc you'll really hurt.

Be careful, just understand the numbers and the implications.

 

[ATH]

........So your account would say, hey man, you get almost $15K of deduction whilst your repayments are only $12K.

They all talk about how that is such a great deal for me, but I haven't found one yet that is willing to pay me $4800 (interest payment) for a $2500 return (reduction in tax burden off of that $12000).

 

[Ekka]

The difference is you will have to be 50' up in a tree, and they will be sitting in their air conditioned office.

lol

And remember, a tax deduction is just that, it's not a $ for $ rebate and only happens a long time after the event. But if you have the work for the machine you purchase well and good.

 

[jmack]

morning everyone, do any of you have experience on loans from banks for operating expense and or equipment purchases, any advice is helpful, thankyou j.

thankyou for the advice and knowledge it helps alot j

 

[jmack]

i got an interest free credit card for purchases for one year 50k, any one buy equipment like that before?

 

[ATH]

Sounds like a good deal for now, but be VERY careful about what happens to that in one year. Some of those even go back and slap with you interest that you would have paid if you do not have the principle paid off. It would probably be wise to investigate getting a term loan before the interest kicks in...but confirm what happens to the interest on that card before making a final decision.

The really good thing that the card can do is get you the equipment. Before you close on a term loan, they will want serial numbers of your equipment. That is a catch-22 "so...your tellin' me I can't get the money until I have the equipment???" especially if you are buying used.