Commercial Leases
Businesses lease equipment to reduce company debt, manage the costs of equipment maintenance and ensure efficient use of capital. In turn, this allows businesses to invest in core business operations. Monthly payments can be lower compared to a traditional loan used to buy equipment and assets, which results in a lower impact on a business’ cash-flow.
Types of Equipment Leasing
Equipment leasing is treated as a loan, whereby the lender buys and owns the equipment and then leases it to a business at a flat monthly rate for some specified months. At the end of the lease period, the business may choose to purchase the equipment at its fair market value, continue leasing or return the leased equipment.
Equipment leasing will depend on the leasing and finance company or financial institution your business contracts with. Equipment finance products include finance lease, commercial loan and commercial hire purchase options.
Hire Purchase
A commercial hire purchase arrangement is a legal obligation between the finance provider and the hirer where the amount repayable is calculated on a fixed term. The hirer has ownership of the goods at the beginning of the term. The term of finance agreement can be from 1 – 5 years. Notably, the amount financed is inclusive of GST. However, monthly repayments are not subject to GST.
Operating Lease
Also known as rental finance or off-balance sheet borrowing, this is the most common finance method for business equipment. This method will eliminate cash restraints that exist when making that vital purchasing decision, by not having to pay the total amount of the goods up front. The term of finance agreement can be from 1 – 5 years and must be following ATO Guidelines. Deposits are not required. The full purchase price must be financed.