Buying your next big rig – is this the best time to buy?


If your business is looking to buy a new truck or rig, current conditions might look bleak. Much of Victoria is still under lockdown and borders all over Australia are closed. Despite some of the grim economic indicators, the VTA’s COVID Insights Survey said that 94% of Victorian trucking operators are expressing that their business will not only survive but thrive and grow. 64% said they would invest in new capital equipment, which is encouraging.

So why not make the most of recovery before it even starts? That’s the thinking of Bill Tsouvalas, Managing Director of Savvy and business finance expert.

“Some of the world’s most prosperous companies started amid depressions and recessions; Linfox started life in 1956 during a ‘credit crunch’ instituted by the government. What we’re seeing today is the opposite – the government is encouraging borrowing to spur on economic growth, coupled with record low interest rates.”

What is a chattel mortgage?

A chattel mortgage is a loan agreement between a business and a lender to take out a mortgage on an asset, in this case a truck or prime moving equipment. The asset, also known as “chattel” is owned by the business immediately. The lien or security over the property is removed when the loan is paid in full. The advantage to chattel mortgages is that a business can borrow more than the value of the asset. “This is handy if you want to smooth out costs of registration, tickets, or insurance and ensure it fits into your cash flow projections,” Tsouvalas said. “You can also buy aftermarket accessories such as driver assistance or tracking devices and have it all paid off in one loan.”

Difference between chattel mortgage and hire purchases or leases

The main difference between chattel mortgage and a hire purchase is that the chattel mortgage places ownership of your truck with your company, while your truck is only owned by your company at the end of the loan. A lease, be it a finance lease or operating lease only allows you to operate a truck for a limited period before you have to hand it back. With a finance lease, you are given the opportunity to buy the truck outright, provided you front up with the residual value payment. “These can range from 20 to 50 percent of the truck’s value,” Tsouvalas said. “It’s also known as a balloon payment. You can opt for these in a chattel mortgage to reduce your regular repayments. But you will have to come up with the entire amount at the end of the loan, so be wary.”

COVID-19 tax incentives and loan guarantees

The big incentive as mentioned by the VTA is the instant asset write-off program. This allows business operators to write off up to $150,000 in assets such as trucks and capital equipment. What’s also on offer by the government is the SME Coronavirus Guarantee Scheme, which gives small to medium operators a guarantee on their loans for new (or at least depreciated under half their life) assets. This can speed up approvals as the government acts as your guarantor.

“A borrowing business can access up to $1 million in total for loan terms of five years,” Tsouvalas said. “Chattel mortgages are eligible and are capped at 10 percent if you opt for a variable rate and there are rises. Though, with rates as low as they are now, it would make some sense to fix your rate. Some asset loan rates are comparable with property mortgages.”

Chattel mortgages also have tax incentives such as claiming the GST, depreciation, interest paid, and the fuel input tax credit.

“If you’re waiting for conditions to improve, don’t – these schemes and write-offs won’t last forever. The write-off will expire at the start of next year. Make your move and you could walk away with a bargain.”

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