How does a Commercial Hire Purchase Work?

Under a Commercial Hire Purchase (CHP) Facility, the financier purchases the asset on behalf of the customer and then the customer hires the equipment back over a set period of time. A Commercial Hire Purchase Facility also provides tax deductibility for the client.

Features of a Commercial Hire Purchase Facility

  • term of a Commercial Hire purchase can range from 12 months to 84 months
  • fixed interest rate applies
  • ownership of the asset is transferred to the client when the final payment or residual payment has been made by the customer
  • payments can be made weekly, monthly, quarterly, yearly or structured (i.e. agreed payments over different times of the year)
    residual payment at the end of the term can be applied to the loan reducing monthly payments
  • client can contribute a deposit towards the purchase (either through trade in or cash) or fund 100% of the cost of the asset
  • depreciation and interest is claimed as a tax deduction at the end of the financial year on customer profit and loss statement reducing tax paid to the ATO
  • gst amount on the purchase is claimed as a gst input tax credit over the life of the Commercial Hire facility

Benefits of a Commercial Hire Purchase Facility

  • financing a truck or farm machinery using a Commercial Hire Purchase facility as opposed to using own funds, will preserve cash flow to maximise working capital position
  • flexible payment options allow clients to make payments suitable to their cash flow
  • fixed payments allow businesses to accurately project income and expenses going forward
  • option of a residual payment at the end of the term reduces payments over the term of the loan
  • Commercial Hire Purchase loans for heavy equipment can be assessed on either a full doc or low doc basis
  • as these types of loans use the equipment as security, it allows clients to free up property equity to pursue other investment opportunities
  • residual payment can be paid out at the end of term (by way of trade in or cash payment) or refinanced (by way of a new loan agreement)
  • tax deductibility at end of the financial year

Who would use a Commercial Hire Purchase Facility?

A commercial hire purchase is a form of financing heavy equipment or heavy vehicles in Australia for sole traders, partnerships or companies using an accrual based accounting system. All clients need to discuss this form of financing with their Accountant, to ensure that they receive the most relevant information based on their own financial structure.

To discuss any funding scenarios or ask more questions about this product, please call us on 1300 788 740, so we can guide you through the whole process and make suggestions as to the best funding option based on your individual situation.

For an idea on approximate weekly payments relating to a particular purchase, please input the relevant details into our truck finance calculator.

Example of a Commercial Hire Purchase used for Concrete Pump Finance

  • Purchase Price of new DAF Truck and Everdigm Concrete Pump – $650,000 (gst inc)
  • Finance Type – Commercial Hire Purchase (CHP)
  • Loan Amount – $650,000 (gst inc)
  • Term – 60 months
  • Residual – 30% or $195,000
  • Payments – monthly in arrears

Outcome

  • Client could claim $59,090.91(gst amount on the invoice) as an input tax credit on their business activity statements over the life of the loan (calculated $650,000 / 11 = $59,090.91 / 60 months = $984.85 or $2,954.55 per quarter)
  • Depreciation and Interest claimed as a tax deduction on the company profit and loss statement – approximate reduction of taxable income by $80,000 – $100,000 (depending on the depreciation method employed by clients accountant)
  • The 30% balloon payment reduced payments on the loan over the 5-year period (payments are only calculated on $455,000 – ie purchase price $650,000 less the residual payment $195,000)
  • Fixed interest rate allowed client to easily budget for ongoing expenses

Who would use a Commercial Hire Purchase (CHP) Facility?

A Commercial Hire Purchase is a form of financing heavy equipment or heavy vehicles in Australia, for businesses operating under an accrual based accounting system.

Heavy Vehicle Finance advises that all clients need to discuss a particular funding scenario with their Accountant before making a decision on what product to use when financing trucks or any type of heavy equipment. By discussing Commercial Hire Purchase Finance with the Accountant, it ensures that the client receives the most relevant information based on their own financial structure.

To ask more questions about a Commercial Hire Purchase Facility

To discuss how a Commercial Hire Purchase facility works in further detail, please call one of our Finance Consultants on 1300 788 740. One of our specialists Finance Consultants will be able to suggest the best product relating to your particular funding scenario. Or alternatively you could also fast track the process by completing our online finance pre-approval form.

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