In search of a new crusher or excavator? There are three types of finance quarrying businesses can turn to if they need to upgrade or purchase new plant and equipment entirely.
Quarry operation in the 21st century requires the best plant and equipment that’s up to regulation and O&S standards. That means upgrading pieces of equipment regularly – or getting your hands on new plant entirely. In this day and age, what’s the best way to fund your equipment? There are three types of funding your business needs to be aware of before jumping in the deep end.
Chattel mortgage and hire purchase
A chattel mortgage is a popular business finance option that allows a registered business to purchase equipment and take immediate ownership. A chattel mortgage is a type of secured loan with many tax deductions or reimbursements – some of which can be claimed immediately. Businesses can claim GST, interest, and depreciation through activity statements.
It’s also a cashflow neutral solution. Your business can borrow more than the value of the equipment to amortise registration, insurance, and other upfront costs. A hire purchase is effectively the same, except the bank or lender retains ownership for accounting purposes. The plant you use is effectively yours to operate – “ownership” is transferred after the loan term is over.
Equipment finance expert and Savvy managing director Bill Tsouvalas says that businesses can finance “equipment manufactured locally, interstate, internationally, through dealers, second hand sales, or auctions; the choice is yours. Chattel mortgages can amortise the shipping and installation fees for plant in many cases, especially if you need specialised equipment not found elsewhere.”
Operating leases give businesses a way to gain access to plant and equipment with an ongoing lease. Your business is obligated to provide monthly or fixed term repayments across a lease term. Operating costs are deducted as expenses and the equipment is returned to the dealer or financier at the end of the lease. In operating lease situations, maintenance and other servicing is taken care of by the lender or manufacturer as part of the lease agreement. However, your business will need to keep the plant in good working order for it to be accepted back.
The “best of both worlds,” finance leases are flexible leasing options that gives your operation the option to buy the equipment at the end of the lease if you so choose. You can pay out the residual value and take ownership of the equipment. You may also hand the equipment back or start a new lease with new or different equipment.
“This is the most flexible way to grow a business in materials and mining,” Tsouvalas says. “If your business is gaining good use out of a piece of plant it can take on ownership – but that also means taking on maintenance costs too.”
“It’s hard to look at your business and say ‘oh, leasing is the best’ or ‘you should buy your plant’,” Tsouvalas says. “It really is about the size and scale of your projects. If you have a short-term project in the pipeline, leasing is usually a cost-effective solution so you can scale up and down. Buying is permanent; and if your quarry is, that makes sense too. But always consult your accountant before making a decision.”