Lease finance leasing is often used for the acquisition of motor vehicles and plant or equipment for business purposes.
Finance products commonly available for these purposes are;
- Finance Lease
- Operating lease
- Commercial Hire Purchase
- Chattel Mortgage
- Novated Lease
Each of these products are structured differently to suit different business models and financial accounting structures. The accountant who handles the business accounting is the best person to recommend which option may be most suitable to match the business requirements. A basic overview of the different types is detailed below.
Chattel Mortgage is a finance agreement where the borrower owns the vehicle, plant or equipment during the period of the loan. It is possible to usually claim both the depreciation and the GST that was included in the purchase price initially. This is one of the more popular and arguably the most common form of asset finance that is used especially for business purposes at present.
Finance Lease provides up to 100% finance for the acquisition of plant or equipment to be used by a business. With a finance lease the ownership of the goods remain with the lender who claims depreciation of the asset.
Operating Lease is an agreement to rent plant or equipment for business use normally for a predetermined period. The equipment is either returned to the financier at the expiration of the agreed lease term or an offer to purchase the goods for a mutually agreed price may be possible in many instances. Operating leases can be attractive to businesses who operate fleets of vehicles for example.
Commercial Hire Purchase is a finance contract where the financier is the owner of the goods and allows the finance applicant as a hirer of the goods the right to possess and use the goods in return for regular payments. A balloon payment to be paid at the end of the agreed term is optional with a hire purchase agreement.
When the final payment of the commercial hire purchase is made, the title to the goods is transferred to the hirer. Commercial Hire Purchase may often provide additional tax advantages as a hirer may be able to claim the interest repayments as well as the depreciation of the asset whereas with a standard lease the actual repayments are usually the only tax-deductible part of the equation. A hirer also has the option to purchase the asset outright prior to the end of the commercial hire purchase term.
Novated Lease is a convenient and flexible way for employers and employees to jointly finance motor vehicles as part of a salary package arrangement.