While arts workers have their own distinctive jargon – hello ‘ecosystem’, ‘capacity building’, ‘performativity’ and ‘provocation’ – the financial world can be equally baffling for those who are not part of its daily discussions.
For example, if you’ve never sought finance for a work-related vehicle, be it as a sole trader, partnership or as a company, then you may be unaware of the variety of options available, much less their comparable advantages.
Thankfully, companies such as Savvy – one of Australia’s leading financial comparison sites – exist to help demystify the process.
Car lease versus hire purchase versus a chattel mortgage
When operating a business in the arts sector, cash flow can be irregular, so it’s important to protect cash reserves to maintain liquidity. Therefore, when getting a new work vehicle, choosing a finance option with the minimum upfront payment may be important.
A car lease is a financial arrangement where businesses and individuals can use a vehicle without owning it. The financier buys the car and leases it to you for a set term, typically one to five (1-5) years, with a residual payment. This lease can offer tax benefits by allowing you to potentially deduct the entire monthly payment.
Hire purchase is a flexible finance solution for art sole traders and businesses seeking to eventually own long-term assets without affecting cash flow. Repayments can be tailored to fit your business cycle, and no deposit is required. All repayments are treated as operating expenses, and you can finance maintenance and servicing.
Chattel mortgages: what are they and why would you want one?
A chattel mortgage is a business car loan with two parts: the chattel (the car being financed) and the mortgage (the loan itself). The car becomes your property, but a financier places a mortgage on it as security. This assures the lender that you will repay the loan, resulting in potentially lower interest rates.
As Savvy CEO and Managing Director Bill Tsouvalas explains, ‘A chattel mortgage is a mortgage on an asset, on a chattel. It’s a commercial facility such as a car or a small truck that you may need to transport an artwork to a customer’s home, and which is utilised by businesses to take out finance in order to buy equipment. The finances are secured through a mortgage using that particular piece of equipment as security.’
How do you apply?
When preparing to apply for a chattel mortgage or car loan more broadly, there are several steps you’ll need to follow, such as ensuring you have 100 points of ID (such as your driver’s licence [60 pts], a passport [50 pts] or birth certificate [50 pts]) and proof of income – such as your last two tax returns if you’re self-employed, or your last two payslips. For more information on the process read Savvy’s comprehensive guide.
‘If tax returns are not possible, there is something called “loan documentation chattel mortgage”, which means that with some lenders you don’t need to provide tax returns. They will finance the piece of equipment if, for instance, you show stability through a tenure of ABN. Or if you are the owner of a property or paying a mortgage, they would say, “OK, the fact that you’re paying a mortgage on your house and you’ve been in business for five years, we think you’re a pretty good person to lend to”,’ Tsouvalas says.
As with taking out any loan you’ll also need proof of other assets, such as property, savings or investments, and details of any other debts you may already have incurred.
Getting help from a broker
One of the advantages of working with a broker is that they will do most of the legwork for you, Tsouvalas explains.
‘Once you’ve submitted the information, a qualified broker like us will then submit it to a lender. We would look at, say, 15 different lenders to work out who’s got the best interest rate for that particular asset that you’re looking to purchase, and we’ll typically have an approval back within 24 hours. And then generating documents will take another two to three days. So all up it’s about a four-day process,’ he tells ArtsHub.
‘Our speciality lies in financing assets such as cars and equipment. That’s our core product offering, and so we have a network of brokers across Australia that can help with all different types of enquiry,’ Tsouvalas says.
‘We enjoy dealing with commercial customers because we are contributing to the economy and it’s helping small businesses succeed and grow… We help them reach their potential, because without equipment they’re not able to grow their businesses.
In summary, artists looking to finance a work-related vehicle should consider their options carefully. Comparing car lease, hire purchase and chattel mortgage options can help make an informed decision. By leveraging these financial solutions and potentially working with a broker, artists can effectively manage their careers and thrive in their artistic endeavours.