An Operating Lease is where you pay to use vehicle/equipment over a fixed period with one payment per month covering all costs associated with the vehicle/equipment. You may also choose this product if you do not necessarily wish to own the equipment at the end of the term.
This type of financing makes perfect sense when you need to acquire equipment that becomes obsolete due to changes in technology or simply wears out after a period of time.
Your monthly payments cover all costs of equipment/vehicle ownership like in the case of a motor vehicle – fuel, maintenance, tyres, insurance and registration.
Payments under a rental agreement are generally less expensive than other forms of finance as the financier will assume residual risk in the lease. Like other leases, the residual value has the effect of reducing the payments throughout the term; however, with a rental you have no liability for the residual value. This is the financiers risk and you can generally enjoy a much lower interest rate than you would with other finance products.
At the end of the rental agreement you can either:
- Return the old equipment and upgrade to new
- Return the old equipment and walk away
- Continue to rent on a month to month or for a fixed term with a discount
- Offer to purchase the equipment for fair market value (FMV)
- Payments may fully tax deductible if used for business
- May be considered off balance sheet so payments are treated as an expense and the liability is only shown in the balance sheet notes
- Make your ownership decision at the end of the term rather than the beginning
- Flexibility, so you can add and remove equipment, change the term and your payments
- Reduced administration, with no need to keep asset and depreciation schedules
- Payments are fully tax deductible
- Lower interest rate as financier invests in the residual value
- 100% financing including software, installation and maintenance
- Removes ownership problems such as disposal
- Allows you to keep pace to with technology at no extra cost
- Reduced Total Cost of Ownership
- Reduced administration, no need to keep asset and depreciation schedules
If you need an Operating Lease that is just right for your business, contact us online or call us on 02 9453 0300 and learn how Commercial Point Finance can help your business grow.