What is a Commercial Hire Purchase?
A commercial hire purchase agreement is an agreement between your company and the bank to purchase goods over an agreed loan term. Under the agreement the bank (owner) gives your company (hirer) possession of the equipment in return for regular payments. The main difference between the commercial hire purchase and finance leasing or equipment rental is that after the final payment is made, ownership of the equipment changes to your company.
What is the usual loan term for a Commercial Hire Purchase loan?
A typical loan term for commercial hire purchase is the same as most forms of equipment finance. Depending on the type of equipment purchased, loan terms run from 1 to 7 years.
Can I buy second hand equipment under a commercial hire purchase agreement?
Yes, you can purchase new or second hand equipment under a commercial hire purchase arrangement. Like finance leasing and chattel mortgages, the loan term for second hand goods can be reduced depending on the type of equipment purchased and its end value.
The common difference between leasing arrangements (either finance leasing or equipment rental) and commercial hire purchase and chattel mortgages, is that with the leasing agreements, the full cost of the equipment is financed. With commercial hire purchases and chattel mortgages you can finance either part or all of the cost of the equipment.
What about tax deductibility and GST?
The interest on the repayments can be claimed on your tax return. However as at the end of the loan term your company will own the asset, you can also claim depreciation. GST is paid upfront and can either be paid by your company or financed on top of the original loan amount.
As always, you should seek advice from your accountant to see if this product is suited to your company and taxation goals.
Please feel free to contact our staff if you have any questions.