Leasing Finance for Business Equipment and Vehicles

Leasing finance is a smart option for business purchases.  Many businesses overlook leasing finance as a lending option.  The term leasing finance is misleading. In Australia leasing finance is more commonly known as a chattel mortgage, and not to be confused with hire purchase. Leasing finance is a loan for business equipment.  Vehicles, equipment, plant and machinery are all expensive items to purchase. But a solution is leasing finance.  Cash is often not available for these essential business assets.  Leasing finance can assist with buying the equipment needed to grow and develop business.  In this article we explain the benefits of leasing finance.

Savings!

Most people shop around for the best price with their purchase.  As a result many overlook the significant cost savings with shopping for the best finance deal.  But there is probably more savings and benefits with finance. These savings can be significant.

Advantages of Leasing Finance

With leasing finance, you have immediate access to your asset with no huge capital outlay.  Most lenders do not require deposits.  Budgeting is easier with regular repayments at a fixed interest rate.  The rates and repayments are lower than personal or consumer loans with many tax benefits like $150K instant asset write-off scheme. As the asset is security for the loan, lenders prefer new over second-hand.  New is more reliable and they come with a manufacturer’s warranty.  There are various attractive options at the end of leasing finance such as trading in for the latest technology or refinancing the residual.

Leasing Finance Preserves Working Capital

Business assets are necessary for effective profitable operations but they are expensive.  They erode working capital and affect cash flow.  Leasing finance is an option for businesses to consider regardless of the economic climate.  It is an even more attractive option with our current COVID-19 environment where maintaining cash flow with flexible financial solutions is critical.

Interest Rates, Fees & Charges

Fixed interest rates are applicable with leasing finance.  Most contracts have some fees and charges included.  Know the fees and what they are for.  Fees & charges such as insurance, admin, documentation and discharge fees are common.  Early termination and end of lease clauses are important considerations.  These can have hefty fees associated.  There is no reason not to consider negotiating any associated fees & charges. 

Low Rates not always Cost Saving

Some finance is advertised with extremely low interest rates.  Low interest rates do not always equate to cost savings.   When the fees and charges are included, the low interest rate offer can cost more than a higher interest rate lease.   The golden rule is to compare repayments not just the interest rate.  For more details check: Avoid Dealership Finance.

Application

The application needs to be RIGHT!   This is an important and often time-consuming process.  What to submit and what not to submit can be overwhelming.  The requirements from the leasing companies can also vary immensely.  It is well worth engaging a specialist equipment finance broker to assist. They know the short cuts, specific requirements and are experts with negotiations. More importantly, applications can affect your credit rating. 

Finance Procedure

The following is a 4-step guide to a leasing finance procedure:

Step 1. Quote required:

The borrower will need to obtain a quote from their chosen dealer or vendor. A quote is required to calculate the total lending amount.  The asset in most cases is the security for the loan.  Generally, no deposit is required.  This results with minimal upfront cash outlay.

Step 2. Collate Supporting Documents:

Leasing finance application requirements vary.  They are categorised as low doc or full doc loan applications. 

Low Doc lending application requires minimal documentation.  Requirements are:

  • Asset purchased from a licensed dealer
  • Signed Privacy & Consent Form
  • Asset no more than 4 years old
  • Quote from dealer
  • Current Australian Business Number (ABN) with GST (goods, services & taxes) registered for minimum of 2 years. 

Full Doc lending application requires the following documentation:

Leasing Finance
  • Asset purchased from a licensed dealer or privately
  • Signed Privacy & Consent Form
  • Quote from supplier
  • Current Australian Business Number (ABN) with GST (goods, services & taxes) registered
  • Financial statements & tax returns for the last 2 years
  • Current asset & liabilities statement
  • Detailed business background and related company structure

Step 3.  Application approval: 

With all necessary documents the application is submitted for approval.   Upon approval the loan documentation is provided.  This states the terms & conditions of the loan contract.  Any changes maybe negotiated at this stage before signing for completion.

Step 4. Settlement: 

Upon settlement the lender pays the vendor for the asset.  The lender will also register the asset through the Personal Property Securities Register (PPSR).  Finally, the lender will notify all associated parties of a successful settlement in the form of settlement advice or payment remittance.  This will allow the vendor to release the asset to the borrower with assurance of cleared funds.

Helpful Tips for Leasing Finance

  1. Always ask plenty of questions.  Terms & conditions need thorough comprehension.  Any concerns or misunderstandings should be questioned before signing.  
  2. Negotiate before signing:  Any negotiations should be undertaken before the contract is signed.  
  3. Check fees & charges:  Check charges such as insurance, maintenance and repairs.  These may be the lessee’s responsibility.  If so they will need to be included in budget costs. Some expenses are included in the instalments.   Contracts will vary.  Details though will include the term of lease, frequency & cost of payments, interest rate, any fees & charges. 
  4. Consider engaging a specialist equipment finance broker.  A finance broker who deals with leasing finance can save you time and money.  They are expert negotiators and can get the best deal. 

Leasing Finance – Smart Business Option!

Leasing finance assists cash flow.  It can also provide the latest and most efficient equipment with no upfront outlay.  The latest business assets are proving more productive and time-saving.  Leasing finance is the answer for many businesses to getting the cutting edge on competitors with the best equipment.   

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