Success in business is all about finding many small savings and improvements.
This focus on looking for improvements covers everything from profitability, reductions in expenses and maximising tax advantages.
One area where many small business owners do not maximise their tax advantages relates to borrowing.
As small business owners we all have a combination of business and private debt. When interest rates on business loans are higher than the interest on private loans, a decision can be incorrectly made to pay off the business debt before the private debt.
Focusing just on the rate of interest being charged on a loan, rather than the after-tax cost of a loan, will inevitably lead to a wrong decision being made.
For example, a business loan at 6 per cent, for someone on a tax rate of 34.5 per cent, results in an after-tax interest rate of 3.93 per cent because the interest is deductible. Because interest paid on a home loan mortgage is not tax-deductible, an interest rate of 4.2 per cent is actually more expensive.
This means it makes sense for business owners to pay interest only on business loans. And pay off their private loans as quickly as possible.
At Craig Tracey Lending we work with you and your Accountant to find the right business lender and loan package to suit your business.
Find out more here: Run your own business