Finance Lease
With this facility the financier purchases the equipment required and then leases the equipment to the client over a set term in return for a series of predetermined rental installments. There is a residual value at the end of the term, and most financiers will offer to sell the equipment to the client for this amount. The equipment must be used predominately for business use, terms generally range from 12 to 60 months, and the interest rate is fixed for the term.
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Ownership under Lease
The financier owns the equipment until the final payment, including any residual, is paid. The ownership is then transferred to the lessee.
Residuals on Lease
There is usually a residual value, which is owed to the financier at the end of the term. It is often calculated as a percentage of the original purchase price. In the case of residuals there is a risk the equipment will not be worth the residual payment.
Accounting under Lease
The purchase price under a finance lease is treated as a capital purchase and depreciated over the life of the asset. The interest cost is also treated as an expense. GST is charged on each installment. Normally lease payments are treated as deductible expenses for businesses.*
*Please refer to your Accountant or Advisor for Tax Advice.
Balance Sheet
Both the asset and liability are shown on the balance sheet.
Upgrades and Add Ons
Upgrades and add ons generally require another lease and/or payout of the old lease – a penalty may be incurred for this.
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Operating Lease/Equipment Rental
As with a Finance Lease, the financier purchases the equipment required, and then rents the equipment to the client for a series of predetermined rental installments. No residual is payable however, and at the end of the term you can return the equipment to the financier. Alternatively, if the client wishes to retain the equipment they can make an offer for fair market value to the financier to purchase the equipment. The equipment must be used predominately for business use. Terms generally range from 12 to 60 months, and the interest rate is fixed for the term.
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Ownership under an Operating Lease/Rental
Renting is an operating lease where ownership is not the motivation but where upgrading to new equipment during the term is easy. If you don’t upgrade, equipment is returned at the end of the term. Alternatively you can make an offer to purchase the equipment.
Residuals on Operating Lease/Rental
Normally there are no residuals in a rental agreement – it is undisclosed.
Accounting under Operating Lease/Rental
Rental costs are written off in the month they are incurred. Rental costs are normally treated as deductible expenses for businesses.* GST and stamp duty are paid with each installment.
* Please refer to your Accountant or Advisor for Tax Advice.
Balance Sheet
Rental equipment is not shown on the Balance Sheet and neither are the rental payment liabilities, other than due or overdue payments.
Upgrades and Add Ons
One of the advantages of a rental is easy upgrades and add ons.
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Novated Lease
A Novated Lease is a form of Finance Lease for Motor Vehicles, designed for employees who have the option of receiving a car as part of their salary package. It works the same way as a Finance Lease except the employer assumes the employee’s rights and obligations under the lease, including payment of the lease rentals. Should the employee leave the company, the vehicle remains with the employee and they assume responsibility for the rentals. Terms generally range from 12 to 60 months and the interest rate is fixed for the term.
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Commercial Hire Purchase
A Hire Purchase arrangement is a contract where the financier owns the equipment during the term of the hiring. The hirer pays installments over the term of the loan, and when the final installment has been paid, ownership of the equipment passes to the hirer. The equipment must be predominantly for business use, terms generally range from 12 to 60 months, and the interest rate is fixed for the term.
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Ownership under a Hire Purchase
As mentioned above, the ownership is transferred to the hirer at the completion of the hire purchase contract. GST is not paid on the installments themselves.
Residuals/Balloons on Hire Purchase Agreements
Hire Purchase agreements often contain options for residual or balloon payments at the end of the term. Where a balloon option is taken, there is a risk the equipment may not be worth the residual payment at the end.
Accounting under Hire Purchase Agreements
The purchase price under a hire purchase contract is treated as a capital purchase and depreciated over the life of the asset. The interest cost is also treated as an expense. GST and Stamp duty are accounted for at the start. Under a hire purchase, contract depreciation and interest charges are normally treated as deductible expenses for businesses. GST is usually claimed in full up front, however conditions apply*
*Please refer to your Accountant or Advisor for Tax advice.
Balance Sheet
Both the asset and liability are shown on the balance sheet including GST and stamp duty.
Upgrades and Add Ons
Upgrades and add ons generally require another hire purchase agreement and/or payout of the old hire purchase agreement – a penalty may be incurred for this.
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Chattel Mortgage
A Chattel Mortgage is a loan agreement whereby the customer borrows funds to purchase equipment, and takes ownership of this equipment. The lender will take a charge over the equipment as their security. The equipment must be used predominantly for business use. Terms generally range from 12 to 60 months, and the interest rate is fixed for the term.
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Ownership under a Chattel Mortgage
As mentioned above, the ownership of the goods is with the purchaser/customer from the outset once the invoice is raised and the financier has paid for the goods. The customer makes fixed payments over the term of the contract to repay the goods. There is no GST or stamp duty on the installments.
Residuals/Balloons on a Chattel Mortgage
Chattel Mortgage agreements often contain options for residuals or balloon payments at the end of the term. Where a balloon option is taken, there is a risk the equipment will not be worth the balloon payment.
Accounting under Chattel Mortgage
The purchase price under a Chattel Mortgage agreement is treated as a capital purchase and depreciated over the life of the asset. The interest costs are also treated as an expense. GST and Stamp Duty are paid at the start. Under a Chattel Mortgage, depreciation on the goods and interest charges are normally treated as deductible expenses for businesses*. GST is claimed back in full up front by the customer*
*Please refer to your Accountant or Advisor for Tax advice.
Upgrades and Add Ons
Upgrades and add ons generally require another hire purchase agreement and/or the payout of the old Chattel Mortgage agreement – a penalty may be incurred for this.
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Low Doc Equipment Loan
This product is available for clients who
A. Starting a business with no financials, but have property.
Or
B. They have been in business with an ABN for a minimum of 2 years with no property and no financials.
Call us today to arrange finance today!
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Equipment Rental/Lease
Renting is also known as an operating lease. As with a Finance Lease, the financier purchases the equipment required, and then rents the equipment to the client for a series of predetermined rental installments. No residual is payable, however and at the end of the term you can return the equipment to the financier. Alternatively, if the client wishes to retain the equipment they can make an offer for fair market value to the financier to purchase the equipment. The equipment must be used predominately for business use. Terms generally range from 12 to 60 months, and the interest rate is fixed for the term.
Ownership under Rental
Renting is an operating lease where ownership is not the motivation but where upgrading to new equipment during the term, is easy. If you don’t upgrade, equipment is returned at the end of the term. Alternatively you can make an offer to purchase the equipment. Equipment rentals are popular for every day office equipment such as computers, phones and photocopiers.
Residuals on Operating Lease/Rental
Normally there are no residuals in a rental agreement – it is undisclosed.
Accounting under Operating Lease/Rental
Rental costs are written off in the month they are incurred. Rental costs are normally treated as deductible expenses for businesses* GST and stamp duty are paid with each installment.
* Please refer to your Accountant or Advisor for Tax Advice.
Balance Sheet
Rental equipment is not shown on the Balance Sheet and neither are the rental payment liabilities, other than due or overdue payments.
Upgrades and Add Ons
One of the advantages of a rental is easy upgrades and add ons.
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Secured Consumer Loans
This product is designed for individuals where the equipment will not be used predominantly for business use, enabling clients to finance the purchase of motor vehicles, motorcycles, caravans or boats. The facility is similar to the Chattel Mortgage product for business use, where the lender will have a charge over the equipment financed as security for the loan. Terms generally range from 12 to 60 months and the interest rate is fixed
for the term.
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