Equipment Finance & Leasing

If the equipment or asset you want to finance is used for business and has a serial number, through our large panel of lenders, we most likely have a finance option for you.
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What Is Equipment Finance & Leasing

When investing in physical assets for your business, the first question after deciding ‘what’ you are going to buy or invest in, is how are you going to ‘pay’ for it. Asset Finance or Equipment Finance as it is also known as the preferred finance option used by business owners. Where you are purchasing an asset (CAPEX) that will last several years, it often doesn’t make sense to use cash flow that should be used for OPEX and kept available to grow your business.

Financing a physical asset allows you to align the payments over the useful life of the asset. Finance facilities have a wide range of options designed to suit the specific needs of your business. There are three main categories of Asset Finance products. None of these product types is better than the others. Instead, each has different characteristics that provide various benefits and treatments of tax. We recommend that you discuss the best product type with your broker and accountant before completing a purchase.

Within a business, there are two broad categories of business expense: Capital Expenditure (CAPEX) and Operational Expenditure (Opex). Capex relates any payment used to invest in physical assets that include property, buildings, industrial plant, equipment and technology. OPEX refers to the day to day operational costs required to keep that business trading such as wages, rent or electricity.

Types of Equipment Finance & Leasing Facilities

Chattel Mortgage or Equipment Loan

A Chattel Mortgage is a popular asset finance product type that means that the purchaser obtains ownership of the asset on the day of delivery. The lender uses the asset being purchased as security for the finance facility.

A Chattel Mortgage and Equipment Loan have the following characteristics:

Ownership You own the asset from the day of purchase
Payments Terms
  • Facility terms of 12mths to 60mths
  • Balloon payment at the end of term is available
Tax Implications
  1. Provided you are GST registered – you can claim the GST included in the purchase price of the asset as an input credit in your next BAS return
  2. Interest charged under the finance is tax deductible
  3. Depreciation of the asset is tax deductible

Finance Lease

A Finance Lease is a type of asset finance that allows you to lease an asset over its useful life with ownership of the asset transferring to you once the final payment has been made. During the finance term, the lender holds ownership of the asset and charges you a monthly lease payment which includes GST. You are not able to claim the GST amount on the purchase price as you don’t own the asset so that the finance amount will be excluding the GST component.

Ownership Ownership will pass to you once the final payment is made – typically the balloon payment
Payments Terms
  • Facility terms of 12mths to 60mths
  • Balloon payment at the end of term
Tax Implications
  1. Provided you are GST registered – you can claim the GST included in monthly payments as an input credit in your BAS
  2. The full monthly lease payment may be tax deductible

Operating Lease or Rental

An operating lease is similar to a Finance Lease; however, there is no transfer of ownership at the end of the term. Your lender will retain ownership of the asset. You rent the asset from them over an agreed term. At the end of the term you can give the asset back or upgrade to a new asset and restart a new rental agreement. Operating Leases are commonly used for assets that you regularly upgrade such as IT equipment, printers or phone equipment.

Ownership Ownership remains with the lender – you are renting from them.
Payments Terms
  • Facility terms of 12mths to 60mths
Tax Implications
  1. Provided you are GST registered – you can claim the GST included in monthly payments as an input credit in your BAS
  2. The full monthly rental payment may be tax deductible

Balloon or Residual Payments Explained

BALLOON & RESIDUAL PAYMENTS:

When discussing the below facility types, you will need to decide if you want a balloon (Chattel Mortgage or Equipment Loan) or a residual payment (Leases) at the end of the term.

A balloon or residual is useful in reducing the monthly repayments of the facility as it reduces the principal you have to pay back. For example, rather than paying the amount financed down to $0 over the term of the facility, you can nominate a dollar amount or percentage of the purchase price as a lump sum payment at the end.

EXAMPLE:

You purchase a vehicle for $50,000 and want to finance the full amount. You are unsure if you should include a balloon payment. You plan to trade the car in after five years and purchase another. Five-year-old models of the same vehicle are currently selling for $18,000.

The example shows that with the balloon payment, payments are $182 cheaper each month ($11,284 less over 60 months) which is cash that can be used to grow the business. As you are expecting to trade the vehicle at the end, the trade in amount pays out the balloon.

Note: If you were planning on keeping the vehicle then it would often make more sense to have no balloon included so the finance amount will be repaid in full over the monthly payments.

Finance with 25% Balloon Payment
Finance Amount: $50,000
No. of Payments: 60
Payment Amount: $792 per mth
Balloon Payment: $12,500
Expected Trade In: $18,000
Equity towards next purchase: $5,500

 

Finance with No Balloon Payment
Finance Amount: $50,000
No. of Payments: 60
Payment Amount: $974 per mth
Balloon Payment: $0
Expected Trade In: $18,000
Equity towards next purchase: $18,000

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