Equipment Finance Lease Loans - Business Lease Equipment
It is frequently necessary to consider business equipment lease when you require equipment but either cannot, or prefer not to, immediately cover the capital cost. Businesses cannot operate effectively without capital equipment that can range from heavy plant and machinery to simple items such as office furniture, computers and company vehicles.
It can be expensive to purchase all of this equipment outright, and many businesses decide to lease rather than to buy. There are also advantages in leasing that might affect their decision, even if they had the ability to purchase their equipment outright, including some tax benefits and the security of making regular planned payments without the intrusion of unexpected repairs and maintenance costs.
Purchasing brings benefits such as owning the assets and likely paying less over the longer term than if you leased, but there are also some disadvantages. These include depreciation, and a reduction in the capital worth of your business, you are responsible for the maintenance and replacement costs of the equipment, and you might also have to replace the plant to remain competitive should it become obsolete.
Leasing also has its advantages and disadvantages, some of the latter being that you don't own the equipment and leasing laws can be complex, but a good leasing company can help you through the legal aspect of it. The main leasing advantage is that you more easily budget your fixed payments, you have no unexpected costs should the equipment break down, you are able to use the most up to date equipment available, you can spread your equipment costs over a period of time and don’t forget the tax benefits!
If you decide to go for a business equipment lease agreement, then you will likely need a finance company to finance and perhaps even organize the lease for you. In many cases a straight lease is not the best option for you, and many business owners opt for other means of spreading their capital expenditure. You have a number of financing options depending upon the circumstances of your business. Among these are:
Chattel Mortgage (CM)
With a chattel mortgage the goods are yours when purchased and the finance company takes a mortgage over them. Among it's benefits are the fact that you can make tax claims for depreciation, interest and running costs against the income of your business, and no capital outlay is needed. If you prefer, you can make an initial deposit to reduce your repayments. Once you have paid the chattel mortgage in full the goods belong to you, and you can often apply a balloon payment if you wish.
A chattel mortgage is not true leasing in that you eventually own the goods that can depreciate and may have to be replaced at some time. You are also responsible for breakdown and repairs. This type of finance allows you to claim the GST on the purchase price in your next Business Activity Statement, assuming that you are using the 'cash' method of accounting for the GST.Commercial Hire Purchase (CHP)
Commercial hire purchase is similar to a chattel mortgage in that the lender holds title of the equipment until it has been completely paid for. Also, like CM, you can claim depreciation, interest payments and running costs against the income of your business, and there might be other claims you can make that your accountant can help you with.
There are also different forms of business equipment lease as opposed to actually buying the equipment. These are:
Equipment Lease
With an ordinary equipment lease, you are hiring the equipment over a period and can often change it for upgraded or newer equipment when you can afford the extra leasing fees. If you want this option, then make sure your agreement allows it, because some do not. You are responsible for maintenance of the equipment, although you have the benefit of no depreciation and the equipment does not appear on your balance sheet.
Maintained Business Leasing
This is the same as business leasing, only you pay extra to cover for maintenance. This gives you security against any unexpected maintenance and breakdown costs.
Equipment Rental
Rental is like a short term business equipment lease, and is generally an option for occasional use of larger items of equipment and machinery that are needed for only a short period time for specific types of work. Examples include heavy lifting machinery and other forms of industrial equipment that is not needed as part of your normal business activity.
If you are not sure what type of business equipment lease is most suitable for your business, then seek the advice of your finance company. Perhaps you have a bad credit record or have no documentation. In such cases you can obtain low docs or no doc finance. You might also need help with heavy equipment agreements that required specialized loan submissions, or want some help with the best form of finance for tax purposes.
Your finance company should be able to help you with all of these forms of business equipment lease and the problems and questions that you might have, even when you have found it difficult to get finance.
