January 31, 2018
In today’s scenario, our client has a 4-week old ABN in addition to an existing ABN that’s over 12 months old.
The client wishes to diversify by buying a van and running delivery routes with the new ABN as a seperate business.
Most lenders will not lend on ABN’s with less than 12 months history, but some may consider applications with 6 months history.
There are several options in this instance whereby he can release or secure funds against the vehicle he wishes to buy.
If he owns a property with equity, he can release the equity by refinancing and pay for the van with cash.
This would be the last resort for the following reasons:
· He’ll be paying interest on the extended amount refinance over the term of the home loan and not a conventional 5-year term applied to most assets,
· The vehicle is not used as security so if for some unfortunate reason the vehicle is no longer in his possession, he’ll still be making repayments for an asset he does not have,
· The tax benefits on the interest payable may not apply, and
· There may be costs involved with refinancing,
There are other third tier lenders that assist new ABN holders by assessing the future of the business and not analysing the lack of history. These are traditionally operational leases with the initial cash out lay being high, however these offer great tax benefits reducing the final net cash injection.
The option we would suggest in this instance would be to use the new ABN as the applicant and advising the existing ABN, which generates more income and can service the debt, to be the guarantor.
The lender will understand that the director owns both entities and therefore distributes the income generated from the existing business accordingly.
This option doesn’t prohibit you from approaching lenders with good rates and still provides you with flexibility.
It will also help build a credit file for the new ABN and help open the new business to more options after the 12-month milestone has passed.
Does this scenario sound familiar to your circumstance and need further information?
Contact Finance prospects now for a chat and coffee to see how we can help find a solution for your business!