Key Insights
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Once you have assessed the available financing options for upgrading your fleet, the next important step is determining how that purchase should be structured within your transport business and personal financial position.
While the decision to purchase a truck outright or fund it with borrowings may seem to be straightforward, the way that choice interacts with cash flow, tax deductibility, GST and private debt can have a material impact on long-term outcomes for transport business owners.
Outlined below are the key considerations when deciding whether to use cash or borrowings, and why funding business assets with debt, rather than cash, is often the more effective strategy.
Understanding the practical differences
When a business purchases a truck using cash, the asset is owned outright from day one. There are no repayment obligations, however a significant amount of working capital is tied up immediately.
When a business borrows to acquire a truck, ownership still rests with the business from the start, while allowing cash reserves to be preserved. The business can generally claim depreciation on the asset and deduct interest on the loan used to acquire it.
From a tax perspective, ownership outcomes are generally similar. The key difference lies in liquidity, flexibility and the overall after-tax cost of capital, rather than ownership itself.
Why Borrowing for Business Assets is often Preferred?
A common misconception among business owners is that paying cash for a truck is the most conservative approach. In many cases, this can be less efficient, particularly where the owner also carries private debt such as a Home Loan or Motor Vehicle Finance.
As a general principle: business assets should be funded with business borrowings, allowing surplus cash to be retained or offset against non-deductible private debt.
Interest on business loans used to acquire 'Income-Producing Assets' is typically tax deductible. By contrast, interest on a private home loan is not deductible. For instance, holding cash in a mortgage offset account can effectively reduce private interest costs at a guaranteed rate.
Example - Cash Purchase vs Borrowing
Consider a transport business purchasing a truck for $300,000:
| Cash Purchase |
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| Borrowing to Purchase |
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In many cases, the borrowing option results in strong cash flow and improved liquidity.
Consideration surrounding Cash Flow
Cash flow is critical in the Transport industry. Tying up large amounts of capital in a depreciating asset can leave a business exposed to unexpected events.
Preserving cash allows a business to maintain sufficient working capital to manage unforeseen costs and take advantage of investment or growth opportunities as they arise:
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Fund major repairs and maintenance
- Absorb delayed customer payments
- Meet overheads during quieter periods
- Hire a new staff member
- Cover employee entitlements in the event of termination or resignation
- Take advantage of growth or contract opportunities
- Fund future investment such as purchase or development of larger depot
Maintaining liquidity often provides greater protection than eliminating debt entirely.
Final Thoughts
When upgrading your fleet, financing decisions should not be made in isolation. The most effective outcome are achieved when:
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Business and personal finances are considered together
- Cash flow requirements are clearly understood
- Tax outcomes support, rather than drive commercial decisions
- Funding structures align with long-term objectives of the business
The decision to use cash or borrowings is not simply about avoiding debt. It is a structuring decision that should support both the business and the business owner over the long-term.
For More Information
To understand how Archer Gowland Redshaw can assist your business, visit our Transport & Logistics section on our website.
For tailored advice when purchasing or upgrading trucks and other business assets, please contact Greg Rankin (Manager) or Smiljan Jankovic (Managing Director) on (07) 3002 2699 or via info@agredshaw.com.au.
