What is a finance lease?
A finance lease requires the lender to purchase the vehicle or equipment on your behalf. In return you pay rental instalments to be able to use the equipment.
What is the usual loan term?
With a finance lease, it should be thought of as a lease rather than a loan as you actually don’t own the asset, your finance company does. Usually, you would rent the equipment for a period of 1 to 7 years, however longer terms can be negotiated with the bank.
Can I buy second hand goods on a finance lease or do I have to buy new?
Typically most companies would purchase new goods and finance them over the maximum term, regardless of the type of finance they chose (Finace lease, commercial hire purchase, chattel mortgage or equipment rental).. However providing the type of equipment purchased is accepted and the age of the machinery or vehicle is recent or near new then a finance lease can be done. The main thing to bear in mind is that if you purchase goods that are 2 years old, it would be difficult to obtain a 7 year term, traditionally the loan terms are shortened for second hand equipment.
What about tax deductibility and GST?
As you don’t technically own the asset, you should be able to claim the full lease payment on your tax return. As for GST, this is inbuilt into each lease payment.
You can opt for monthly, quarterly, half yearly or annual payments which ever suits your cash flow best.
As always, you should consult with your accountant to see if this style of finance is suited to your business and taxation goals.
For further information on finance leasing, please contact us to see if you qualify