Financing your practice is not simply a matter of the lowest rates. There are many financing options and working with an experienced company, to provide a full range of finance for you and your practice that could mean substantial savings.
The cost of the structuring of your practice financially will be governed by many factors including tax, loan structure, interest rate, GST and fees. However, it is important to realise the final cost and interest rates, may not correlate. If you are considering a major refit of AUD$80,000 plus AUD$20,000 equipment, what are your options and what is the real cost? As mentioned, tax, loan term, rate, fees and GST all play a part in assessing the cost. This is where it is important to choose a financier offering all alternatives. For example, many banks will not do a lease on fit-out, which may be the most tax effective solution for your practice. In fact, how often are you made aware of what options exist and the cost effect on each?
Assessing Your Options
In order to asses the cost of each option, a net present value (NPV) calculation is done. It considers all the various cash flows and discounts them to a common value.
In an example of AUD$80,000 fit-out and AUD$20,000 equipment, paid off over five years with a 10 per cent residual, the NPV is as follows:
Lease AUD$44,968
CHP AUD$52,929
Loan (Mortgage) AUD$51,953
Cash AUD$57,487
As can be seen for these assets, a lease is your best option. This scenario can vary substantially depending on the nature of the equipment. Financing your practice is complex and choosing the best option in your particular position may save you thousands of dollars. Make sure you speak to an expert financier who knows and understands your business and equipment, and can assist you in choosing the best financial option.
|
Lease |
CHP or Chattel |
Mortgage |
|
|
Ownership |
Financier |
Borrower |
Borrower |
|
Payments deductible |
Yes |
No, only interest and depreciation |
No, only intererst and depreciation |
|
Early Payout |
Yes, with costs due to fixed rate |
Yes, with costs due to fixed rates |
Yes, depending if fixed or variable |
|
Fees |
Minimal |
Minimal |
Yes, usually monthly |
|
Additional Security |
Usually no |
Usually no |
Home |
|
Residual |
Yes |
Optional |
Optional |
|
Fixed Rate |
Yes |
Yes |
Usually no |
Trevor Knowles is a finance specialist at Experien Healthcare Finance. Experien is a specialist in healthcare finance. Trevor can be contacted on (AUS) 0410 553 854 or [email protected] for all your practice and personal finance needs.
