Citiwide Consultants have been involved in Commercial and Business Finance for over 18 years. We understand the pressures of running a small to medium sized business and we appreciate that you probably don’t have the time to shop around properly for the best loan options.

We also understand that a business may require various types of finance ranging from Commercial Property Loans, Business Overdrafts to Motor Vehicle and Equipment finance. Whatever your business finance needs are, we will have a solution for you.

As a commercial and business Finance Broker, Citiwide is accredited with all the major Banks and a number of specialist commercial / business lenders. Success in negotiating Commercial and Business finance is largely based on experience and this is where our strength lies.

To help you evaluate your options we provide you with some valuable information on this site. However, due to the ever changing fiscal environment and to ensure that any decision you make suits your personal situation, we highly recommend that you consult your Accountant or Tax Adviser before committing to any type of commercial finance.

To apply for Commercial / Business Finance lenders generally require you to supply 2 to 3 years records of financial information, i.e. Tax Returns, Profit & Loss Accounts and a full Statement of Assets & Liabilities for all parties involved in the transaction. If you are unable to provide that information, please click here for information on Low Doc Loans.

General overview of business loans

Fully Drawn Advances (FDA) or Business Term Loan

FDA’s or Term Loans are where the full amount borrowed is advanced to the borrower in one drawdown. These types of loans are generally over longer terms (up to 15 years) and may have Fixed or Variable rates of interest. Repayments may be "Interest Only", or "Principal and Interest".

Lenders generally lend up to 75% of the value of the Commercial security.

Business Overdraft

Overdrafts are probably still the most common type of finance used by businesses. An overdraft is a Line of Credit attached to a cheque account which allows business to operate on a day-to-day basis. The use of an overdraft is referred to as "working capital". Overdrafts are charged at a variable rate of interest, with interest being calculated daily on the balance outstanding. The balance of an account with an overdraft facility should ideally fluctuate between debit and credit as cash outflows and inflows occur.

The main features / benefits of a Business Overdraft are:

• Bridges the gap between payment of your creditors and receipt of money from your debtors
• You only pay interest the funds you use. No set repayment is required.
• You can access your funds in a number of ways including cheque, online or telephone banking

Most lenders require some form of collateral security, however there are exceptions. While business overdrafts are great for freeing up cash, they’re not necessarily recommended for long-term financing needs as the interest rates can be higher.

Business Mortgage Loan

A Business Mortgage Loan may be suitable for business people who have a residential property to offer as security for the loan. By borrowing against your residential asset, as opposed to your business asset, you will generally benefit from a lower interest rate. You can effectively operate the loan in a similar way to a Line of Credit.

Utilising a Line of Credit, means that the facility remains even when you've paid off your loan. This is ideal if you need to take advantage quickly of any other opportunities that may arise in the future.

Commercial Bill

Commercial Bills can be an excellent option when you need a significant injection of cash above $100,000. Normal terms are from 7 to 180 days and there are two types of bills - Floating Rate Bills & Fixed Rate Bills.

With Floating Rate Bills, the drawdown rate and the term to maturity of the bill are agreed at the time of the drawdown. The interest rate applicable is determined by the term of the bill. If the period is extended or rolled over, the interest rate may vary.

With Fixed Rate Bills, the drawdown rate is fixed for the term of the facility and your interest rate remains constant for the term of the facility, which may include several rollovers. With variable rate bills, the interest rate is fixed for each period.

Borrowing on a Commercial Bill facility offers the flexibility to adjust the principal amount borrowed at each rollover (or interest payment period) in line with business cash flow requirements, within a specified limit.

Low Doc / No Doc Loans

These types of loans are becoming more and more popular among self employed / business owners, because of their simplicity.

Low Doc means that you do not have to supply detailed Tax Returns and Financials. Instead you are required to sign your own declaration of income.

No Doc means that you do not have to supply detailed Tax Returns and Financials and you are not required to sign a declaration of income. In this case lending decisions are based simply on the value of the security and your credit worthiness.

If you have difficulty showing documentation to demonstrate your income, or you have limited business financials, a Low Doc or No Doc loan may be the right solution for you. Many self employed business operators have difficulty substantiating income or producing full records of their income. Interest rates vary quite considerably from lender to lender, so it pays to shop around.

With appropriate security, loans ranging from $50,000 to $2.0M are now available under this program.

Motor Vehicle & Equipment Finance

Leasing

There are different types of leases, and generally leasing is used for financing the purchase of assets such as cars, computers, equipment, machinery etc. It is a rental agreement, where the finance company purchases the goods for you and you rent it from them for an agreed monthly repayment.

The finance company owns the goods at the end of the agreement and it is important to note that there is no option for you to purchase the goods either during or at the end of the agreement. However, most finance companies will consider an offer from you to purchase the goods for the residual value at the end of the lease term.

It is a popular form of financing as it saves spending the business capital. The full lease payment is tax deductible if the asset is used 100% for business, but the value of the item cannot depreciate over time. A lease generally requires that a pre-agreed amount (balloon / residual) will be owing at the expiry of the term.

The term of the finance agreement can be from 1 - 5 years and must be in accordance with ATO Guidelines.

Deposits are not required. The full purchase price must be financed.

Residual / Balloon: You must have a residual payment as the last payment of your finance agreement according to Australian Taxation (ATO) Guidelines. This varies between 25% and 65%. This amount usually represents the approximate value of the goods at the end of the lease. A residual payment allows for lower monthly payments and leaves you with more working capital to run your business. You may refinance this residual value at the end of the contract (depending on the finance company).

Owner of the goods: The finance company retains legal title during and after the term of the agreement. However, in most cases, the finance company will usually consider your offer to purchase the goods at the agreed residual value at the end of the lease term. Title of the goods will then be transferred to you as the new owner.

While not usually pursued, legally, the goods should be returned to the finance company at the end of the term. The finance company would then auction the goods and you must pay for any shortfall between the sale price and the agreed residual value.

Accounting Benefits: The monthly rental payments are 100% tax deductible, provided the goods are solely used for business purposes. The amount financed is exclusive of GST (the finance company covers this cost as they are purchasing the goods for you). The monthly rental payments are subject to GST and stamp duty. The residual value and early termination are also subject to GST. The goods need to be shown on the balance sheet as both an asset and liability. However you may be liable to pay fringe benefits tax for any private use of the financed goods. (Please refer to the ATO at: www.ato.gov.au/businesses for further information).

You should always seek advice from your accountant on the rules and how they apply to your particular business and equipment.

Commercial Hire Purchase (CHP)

Hire Purchase is similar to leasing except that you will automatically own the goods when you make the final payment. This means that only the interest payments made on the loan are tax deductible. Depreciation of the asset is also allowed as a tax deduction.

The interest rates on both CHP and Leases are fixed for the term of the loan which can vary between 1 and 5 years.

Deposits are optional. You might choose to trade in an existing vehicle in order to put in a deposit to reduce the amount to be financed.

Residual / Balloon: You can elect to have a balloon payment as the last payment of your finance agreement. This balloon payment is usually between 10% - 40% of the cost price, but may be as low as one dollar, dependent upon the equipment. This decision is usually influenced by the level of monthly payments you are comfortable with.

Owner of the goods: The financier retains legal title (i.e. owns the goods) during the term of the agreement. You automatically secure ownership upon payment of the final instalment.

Accounting Benefits: For income tax and GST purposes, a hire purchase agreement is treated very differently to a finance or operating lease. Under GST, a hire purchase agreement is treated as a "taxable supply" at the start of the arrangement between the hirer and the financier.

With a hire purchase arrangement, there is deemed to be a sale of the equipment from the financier to the hirer, the GST liability arises at the commencement of the arrangement. Even though the total amount payable under the agreement will be paid by periodic instalments and ownership of the equipment will not pass to the hirer until the final repayment. The financier, being the supplier, is responsible for the payment of the GST liability.

Therefore the amount financed is inclusive of GST, and your monthly repayments are not subject to GST unless you are on a cash basis for GST. (Seek advice from your accountant). You can claim the interest component of all repayments. The depreciation of the goods is fully tax deductible providing goods are used 100% for business purposes.

The goods you purchase become an asset that shows on your balance sheet for your business. The goods will also be a contingent liability until the end of the finance agreement. You may be liable to pay fringe benefits tax and should refer to the ATO at: www.ato.gov.au/businesses for further information)

You should always seek advice from your accountant on the rules and how they apply to your particular business and equipment.

Chattel Mortgage

As an alternative to Leasing or Commercial Hire Purchase (CHP), a Chattel Mortgage or Bill of Sales arrangement is a Fixed Interest rate loan with security provided by way of a mortgage over the relevant equipment / vehicle etc. This solution is particularly favourable for those businesses that wish to retain the equipment at the end of the term and account for GST on a cash basis.

A Chattel Mortgage, unlike a Lease or Hire Purchase Agreement, gives you immediate ownership of the asset from the beginning of the loan. Apart from mortgage stamp duty, the contract or repayments do not attract GST or stamp duty. Terms can vary from 1 to 5 years.

Deposits: Are optional. You may, however, choose to trade in an old vehicle or put in a deposit to reduce the amount to be financed, thereby reducing your monthly payments.

Residual/Balloon: You can choose to have a balloon payment as the last payment of your finance agreement, but it also can be the first month’s payment. This balloon payment is between 10% - 40% of the cost price and is generally tailored to match the depreciated value of the asset at the end of the term. A balloon payment allows for lower monthly payments and leaves you with more working capital to run your business.

Owner of the goods: Ownership remains with you throughout the term of the loan. Similarly to a consumer loan however, the vehicle is mortgaged to the finance company. The mortgage is discharged after the final payment has been made and you retain the equipment.

Accounting Benefits: You can elect to pay the GST portion of the invoice price from working capital or fund it as part of the loan amount (the loan can be structured so that when the income tax credit is received, from your next Business Activity Statement (BAS), it is repaid off the loan to reduce the debt). The interest components of all repayments are fully tax deductible provided goods are used 100% for business purposes. The depreciation on the goods is fully tax deductible.

A Chattel Mortgage attracts added upfront fees and varies between the different finance companies. However you may be liable to pay fringe benefits tax (Please refer to the ATO at: www.ato.gov.au/businesses for further information).

You should always seek advice from your accountant on the rules and how they apply to your particular business and equipment.

Operating Lease

An Operating Lease, Equipment Rental or Rental Agreement is a versatile option for financing high depreciation, short life span new technologies such as computers, telecommunication and all other office equipment which generally have a short lifespan due to high obsolescence. The finance company purchases the equipment and rents it to you for an agreed payment schedule over a fixed term. Whilst similar to a Finance Lease, an Operating Lease has greater flexibility.

It provides the ability to upgrade to new technology with a simple variation of your existing contract (certain criteria applies). This variation can be implemented during the initial term of the agreement. You can add in pieces of equipment and if required replace or upgrade equipment. You can choose to have maintenance software installation and other intangible items included in the agreement.

The term of finance agreement can be from 1 - 5 years and must be in accordance to ATO Guidelines.

Deposits are not required. The full purchase price must be financed.

Residual / Balloon: You must have a residual payment as the last payment of your finance agreement according to ATO Guidelines. This residual value is determined by the finance company and the latter is responsible for paying it. Be aware that the residual values are generally not disclosed to you.

Owner of the goods: You have possession and use of the equipment, however, the finance company shoulders most of the risk of ownership.

Expiry of Rental Period: At the end of the Rental Period, you have a number of options:

• Return the goods to the finance company, without any responsibility for loss incurred by the finance company for the resale.
• Return the goods to the finance company and enter into another agreement on new upgraded equipment.
• Purchase the equipment at a fair market value (usually very low due to the high depreciation of the equipment).
• Re-rent the goods at a lower rate for a further term.

Accounting Benefits: Rental payments are 100% tax deductible because they are treated purely as an operating expense the equipment must be used solely for business purposes. Rentals do not appear on the balance sheet, therefore there is no contingent liability. Rental payments are subject to GST, with the amount financed being exclusive of GST. However you may be liable to pay fringe benefits tax (Please refer to the ATO at: www.ato.gov.au/businesses for further information).

You should always seek advice from your accountant on the rules and how they apply to your particular business and equipment.

Novated Lease

A Novated Lease is used for employees who have the option of taking a motor vehicle as part of their salary package. The employer pays all rental payments to the financier on the employee’s behalf and the employee enjoys full use of the motor vehicle.

The term of finance agreement can be from 1 - 5 years and must be in accordance to Australian Taxation Office Guidelines (ATO).

The employee then novates the lease to their employer, who assumes all the employee’s rights and obligations under the lease, including responsibility of meeting the lease payments, normally deducted as part of the employee’s salary package.

Deposits are not required. The full purchase price must be financed.

Ownership of the vehicle: The contract is in the name of the employee who remains the registered owner throughout the lease and keeps effective control of the vehicle at all times. If the employee leaves the company, the vehicle remains with the employee. In this situation, generally the employee takes over the payments or gets another employer to make the payments. This means, the original employer is not left with an unwanted car and the employee keeps the vehicle.

Residual / Balloon: You must have a residual payment as the last payment of your finance agreement according to ATO Guidelines. This usually varies between 37% and 75% of the cost price of the vehicle. This amount usually represents the approximate value of the goods at the end of the lease. A residual payment allows for lower monthly payments and leaves you with more working capital to run your business. You may refinance this residual value at the end of the contract (depending on the finance company). The following range of residual values may be a useful guide for Finance Lease transactions, which fall within the guidelines issued by the ATO:

Term	Residual/ Balloon
1 Year	65.50% - 75.00%
2 Years	56.25% - 65.00%
3 Years	47.00% - 55.00%
4 Years	37.50% - 45.00%

Accounting benefits: The monthly rental payments are 100% tax deductible, providing the goods are solely used for business purposes. The amount financed is exclusive of GST (the finance company covers this cost as they are purchasing the goods for the employee). The monthly rental payments are subject to GST and stamp duty. The residual value and early termination are also subject to GST. Employers can attract employees by offering a vehicle as part of a remuneration package, without having it appear on their balance sheet. However you may be liable to pay fringe benefits tax (Please refer to the ATO at: www.ato.gov.au/businesses for further information).

You should always seek advice from your accountant on the rules and how they apply to your particular business and equipment.

Purchasing a Franchise

Obtaining a franchise in a successful franchise system is often difficult. The initial capital outlay is normally large, and to fully secure the loan you usually have to mortgage your house.

This is where Citiwide can help. We work from the basic belief that franchise businesses are different and usually inherit some strengths and capabilities from the franchisor.

The Citiwide approach offers:

• A quicker loan assessment by placing a value on the past performance of the franchise system.
• Preferred status with some of our lenders to selected franchisors to reflect the value of their franchise system.
• Ability for franchisees of preferred systems to borrow against the value of their business (including all franchise fees, training costs, stock and business assets) up to a percentage of the purchase price.
• Less focus on the franchisee’s personal assets when obtaining finance.
• Loan products tailored for franchisees.
• Market leading eCommerce services for franchise businesses.
• A full range of services which are customised and priced to reflect the value of the franchise

Whatever your need, Citiwide can tailor long and short-term solutions to suit.

For more information or any enquiries call us on 1300 732 630 or contact us using our online enquiry form