How does a Finance Lease Work?
Under a Finance Lease Agreement, the financier purchases the equipment on behalf of the client and then the customer rents the equipment back from the financier over a specific term. Ownership of the equipment is transferred to the customer once the residual payment has been finalised.
Features of a Finance Lease Facility
Benefits of a Finance Lease Facility
Example of a Finance Lease Facility used for Excavator Finance
- Purchase Price of new Caterpillar Excavator – $380,000 (gst inc)
- Finance Type – Finance Lease
- Loan Amount – $345,454.55 (client borrows the ex gst amount)
- Term – 60 months
- Residual – 40% or $167,200 (gst inc)
- Payments – monthly in advance
- Client could claim the full monthly payment as a tax deduction on their profit and loss – minimising tax paid to the ATO
- The 40% residual payment reduced payments on the loan over the 5 year period allowing client to maximise cash flow for ongoing projects (payments are only calculated on $345,454.55 less the residual amount of $167,200)
- Fixed interest rate allowed client to easily budget for ongoing expenses
- The Finance Lease is treated as off balance sheet allowing them to increase their borrowing capacity going forward as this liability does not appear on their balance sheet
Who would use a Finance Lease Facility?
A Finance Lease Facility is a form of financing heavy equipment or heavy vehicles in Australia, for businesses looking to improve the position of their balance sheet through removing liabilities from the balance sheet.
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. The Accountant will be able to discuss what the implications of a Finance Lease will be for their business to ensure they receive the most relevant information based on their own financial structure.
To ask more questions about a Finance Lease 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.