Debt Finance Made Easy

Nick Roberts 

Today, there are few who cannot borrow what, historically, would have been considered huge sums of money. Used appropriately, debt finance can be exceedingly useful - however, get it wrong, and your life could be in ruins:

• Plan your borrowing well in advance. Unauthorised or temporary facilities cost more.
• Do not borrow from the IRD. It’s true that (for some) they will allow surprisingly long periods of credit but the overall borrowing cost, when you add penalties, is usurious.
• Think tax. Many have no business borrowings but a large mortgage and often, private borrowings can be converted into tax-deductible business debts.
• Structure the facilities properly. Often, loans for private purposes are advanced to a company or a borrower has a loan in his or her personal name but treats this as a company liability, resulting in all sorts of problems.
• Always compare alternatives and find out the true interest rate - if in doubt, seek advice from an impartial source.
• Ensure the facility is appropriate to your circumstances e.g. an overdraft will typically cost more than a loan but can save you money if your cash flow really does fluctuate. On the other hand, if there is core debt in the overdraft convert this to a loan.
• Reduce your interest costs by reducing risk for the lender by providing them with reliable and regular financial information and good security.
• Avoid credit card debts like the plague and don’t be tempted by gimmicks.
• Lastly, repay all debt as soon as you can.

A final thought – how many Kiwi’s would be better off retiring debt than investing in KiwiSaver, especially those in conservative funds held in cash?

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use “Contact Us” on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.