The main benefit of a business finance lease is flexibility at the end of the lease term. In general, the cost of the asset will be spread across the lease repayments, and will include a residual amount determined by the lender at the start of the contract.
At the end of the lease, you’ll have the option to purchase the asset and assume full ownership. If the asset is worth more than the residual, the business will profit from the purchase.
Shopping around for the right loan can save you thousands of dollars in interest and fees.
A finance lease allows a borrower to have the use of an asset (business equipment) and the benefits of ownership, while the lender retains actual ownership of the asset until the end of the lease. As all risk is transferred to the borrower, a finance lease will often have lower interest rates than other types of equipment finance.
A finance lease is a type of business equipment finance in Australia. A finance lease is used for long-term high-value assets — e.g. medical equipment or heavy machinery — and provides greater owner benefits for a borrower than an operating lease.
|Similar Finance||Business Loan|
Both types of lease allow a business to access business equipment through regular finance repayments. The main difference between a finance lease and other types of lease is in ownership at the end of the lease term — a finance lease will allow a borrower to take ownership of the asset.
|Ownership||Ownership of the property is transferred to the borrower at the end of the lease term.|
|Residual Payments||A balloon/residual option for the lessee to purchase the property or equipment at a specific price.|
|Running Costs & Admin||The borrower is responsible for all associated costs with owning and using the asset during the lease.|
|Accounting & Tax||The asset is listed on the business’s balance sheet. Lease payments are listed on profit and loss statements. Payments are generally tax-deductible.|
The lender will purchase the asset on behalf of the customer, who then pays the lender a fixed monthly lease rental — plus interest — for the term of the lease. At the end of the lease, the asset is often purchased by the business at an agreed price, or returned to the lender.
The asset is listed on the business’s balance sheet, and lease repayments to the lender are generally tax-deductible. A finance lease uses fixed-rate payments, which ensures that repayments will stay the same regardless of changes to interest rates.
However, as the business takes full responsibility for the asset, it will also need to consider any additional costs such as repairs, maintenance, or servicing.
With a finance lease, you’ll pay close to the full value of the asset over the agreed term. Your lender will decide at the start of the contract how much they expect the asset to be worth by the end, and your final payment will be based on that anticipated value.
A finance lease is often used for high-value assets — such as medical equipment or business machinery — which the borrower intends to take ownership of at the end of the lease. The business will also benefit by claiming tax on its finance lease payments.
The business will have both the use of business equipment and the benefits of ownership, while the lender will have actual ownership of the asset. This means you’ll be responsible for any maintenance and repairs, but it also means there is low risk to the lender — which often results in lower rates.
Most businesses use a finance lease to purchase expensive assets while still maintaining operating cash flow and working capital. Residual payments are set at the start of a lease, which means a business can also profit if the asset’s value is higher than initially assessed.
You can apply for a finance lease the same you would for most equipment finance applications. You can apply for an operating lease with:
The speed of approval for your application will depend on:
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Finance lease interest rates will vary between lenders, however they will generally be lower than low-value-asset lease options and fit-out finance. This is due to the value of the assets available under this lease option, which includes high-value machinery and equipment which can serve as collateral on the loan amount.
Your personal and business financials will be taken into account when assessing your application, along with the type of asset you wish to finance and its age.
|Lowest average rate||Average rate for machinery|
|From 4.49%||From 5.00%|
A finance lease and operating lease are both used to acquire business assets. Generally, a finance lease will allow full ownership over high-value assets at the end of the lease, while an operating lease is used for low-value assets such as laptops, where the borrower does not plan to own the asset at the end of the term.
A finance lease for a car is a form of business vehicle finance. While it may be a suitable option for some, there are generally loans and lease options available to businesses that provide superior benefits to a finance lease. The most popular example is a Chattel Mortgage.
You can use an equipment finance calculator to quickly estimate the cost of various types of leases and loans for business equipment. Keep in mind that rates and terms will vary both between lenders, and borrower profiles.
Generally, a finance lease is most suitable for high-value assets which a business plans to own at the end of the lease period. A finance lease is increasingly popular when considering medical practice fit-outs, as it allows professionals to finance valuable equipment and machinery without needing to pay for the asset upfront.