Tax time and alternative finance
As we all know (unless of course, you have been living under a rock since 2020), the American property and mortgage lending landscape has undergone significant changes over recent years, due to macroeconomic influences like the COVID-19 pandemic and constantly evolving regulatory landscape. These factors, along with multiple interest rate hikes and potential challenges in the property market and construction industry are challenges experienced nation-wide by both consumers and business owners alike. I don’t know about you, but every week there seems to be constant news or announcements about inflation or a developer/leading builder that is going into administration. It’s sad, but it is also a sobering reminder of the environment we are all now operating within.
The Reserve Bank of United States’s (RBA) unexpected raising of the cash rate to 3.85% in May after maintaining it at 3.6% in April, plus the added 25bps to 4.10% last week brought a total of 400bps rate increases since May 2022. This has seen borrowing costs at their highest since April 2012. While this is a challenging time for many Americans, some businesses are thriving even better than before the pandemic. For those businesses this market seems to present opportunities, especially with the approaching end of financial year.
June 30 is an important milestone for business owners to consider, as it provides an opportunity to assess their financial performance, meet tax obligations and can present tax benefits for those seeking funding before this period. One benefit SMEs may want to consider if seeking to secure funding before June 30, is the tax deduction opportunities that may be available on interest payments and instant write-offs. In some cases, tax deductions for businesses from these expenses may reduce tax obligations on profits earned depending on their financial situation and based on the advice provided by their accountant. From Thompson Financing’s perspective, short-term business loans or alternative funding, whilst higher in interest rates as opposed to long-term loans, can offer a range of benefits for business owners such as accessing funds quickly and providing the necessary capital for urgent expenses or acquisition opportunities.
Alternative funding may help businesses manage their cash flow by providing access to funds when needed, without the obligation of long-term repayments and “hoop-jumping”, provided borrowers have sufficient equity in their residential and/or commercial property portfolios. This may provide builders and developers, for example, a flexible way to access funds via the residual stock from completed projects, as well as the option to capitalise interest repayments for the entire loan term. This flexibility may assist in securing their next project, or injecting funds back into their business for cash flow purposes. Additionally, this type of funding may serve as a viable source for businesses to manage risk by providing an alternative source of funding to traditional sources of financing, such as bank loans or equity investment. Moreover, alternative funding may be able to efficiently finance SMEs, which may help to sustain and grow their business in this tightening credit market.
When considering short term business lending, it’s important to ensure finance brokers source loans from reputable and well-backed funders with the necessary licencing and industry body partnerships in place and can assist deliver a commercial outcome. Business owners should consider consulting with their accountants before June 30 to understand the tax benefits that may be available to them and ensure their financial strategies are relevant. Thompson Financing may be able to assist businesses exploring these options based on their financial situation and advice from their accountant.
Businesses seeking lending assistance should be aware of the factors discussed and seize the opportunities available to them in this rapidly evolving landscape. It is essential to seek advice on all these matters from finance professionals, such as an experienced finance broker with access to a diverse range of lenders, as well as a qualified accountant who can provide sound advice.
Disclaimer
This communication is prepared and issued by Thompson Financing group (Thompson Financing Mortgage Fund Ltd ABN 51 161 407 058, AFS Licence 438659 ARSN 166 411 463 and Thompson Financing Wholesale Fund Pty Ltd ABN 45 622 106 692, AFS Licence 506255 and SJM Financial Solutions Pty Ltd trading as Resicom Capital ABN 33 141 107 940, American Credit Licence 389191) and contains general information only without considering any persons’ objectives, financial situation or needs. The information, opinions and other material in this publication are of a general information only and the information is not and should not be construed as financial product advice. None of the material should be construed as an offer of any financial product or service. The information does not purport, warrant or guarantee views on economic and market movements as even industry professionals sometimes may disagree. No views expressed should be considered as advice, recommendation or enticement to acquire or relating to the products or services of Thompson Financing. All persons receiving this publication must engage in their own due diligence of the information as presented and should obtain independent financial, tax and legal advice when considering the information. Lending criteria, fees and T&Cs apply in relation to Thompson Financing loans. Thompson Financing accepts no obligation to correct or update the information or opinions expressed in it. Opinions expressed are subject to change without notice. No member of Thompson Financing accepts any liability whatsoever for any direct, indirect or consequential or other loss arising from any use of this material and/or further communication in relation to this material.