You are here: Lending for business > Plant & equipment

For many businesses it is not an effective use of capital to purchase plant and equipment, including motor vehicles, with cash resources. Rather it is far more effective to finance these options through a lease or hire purchase type arrangement. The variations and options available make it difficult to discuss this area in too much depth. For more information we recommend you contact a Creative Finance consultant and also seek appropriate taxation and legal advice as to which method is best suited to your situation.

Finance Lease

This is a more standard traditional arrangement whereby the lender buys the goods and then leases them to you under a lease agreement. The lender remains the owner of the goods. Depending on the terms of the contract at the end of the agreement you may have the option of buying the goods, returning them to the lender, or refinancing the residual. Depreciation rates of the goods and other taxation benefits are standard as per Australian Taxation Office guidelines.

Operating Lease

Operating Leases occur whereby equipment is rented for use in a business for a fixed period of time without taking ownership at any time or being responsible for the residual value of the goods at the end of the lease. This type of lease is generally used where there is rapid obsolescence and the need to upgrade goods eg Computers. Whilst done at a slight cost it provides an easy and straightforward method for businesses to maintain equipment and then update themselves without having to handle the old goods. Often the lender is someone with bulk buying power that also makes their return on their ability to purchase the goods you need at a greater discount than is available to the general public.

Novated Lease

This type of lease is used for employees of companies for whom a car offers potential salary packaging benefits. Under this arrangement the employee leases a car from a lender under a standard finance lease before then leasing the car to the employer via an operating lease. The employer is then responsible for meeting the repayments which are then passed on tax effectively as part of the employee’s salary package.

Chattel Mortgage

Generally most appropriate where there is going to be more than 50% business usage. You remain the owner of the goods with the lender securing the loan by a registered charge over the goods. This particular arrangement may have GST benefits for certain entities.

Hire Purchase

Under this arrangement the lender owns the goods and you have the right to possess and use the item in return for a regular payment. Once the final payment is made then ownership of the goods is transferred to you.