Need a Mortgage Broker for a Business Lease?
Selecting the best financial product for your business can be confusing as there are so many available options on the market. It would be beneficial to discuss your situation with a First Choice Mortgage Brokers, as we can simplify your decision process.
Business leasing can be classified as either a finance lease, an operating lease or a novated lease. The three categories vary in how vehicle ownership, disposal, and residual risk is organised. For the most part, hire purchase options work the same way as a loan which is used to purchase an asset.
To determine the best form of vehicle leasing, you can first consult with a First Choice Mortgage Broker to consider the following:
- Do you want to own the asset at the end of the lease?
- Will you use the asset for commercial reasons more than half of the time?
- Are you looking to finance the vehicle only, or do you want a range of fleet management services?
- How long do you intend to use the car, and how far will you travel?
- Do you require the commodity to be seen on the business balance sheet?
Please call First Choice Mortgage Brokers to discuss your business leasing opportunities and for any assistance in accessing the business leasing application process.
Types of Business Leases
Finance Lease
A financial business lease is a type of rental arrangement where a vehicle is leased for an agreed-upon period and rental. A residual value is established up front to represent the asset’s value at the end of the term; this is then accounted for on the balance sheet.
Many financing leases do not give you the opportunity or right to buy the asset. However, it is common practice for most financiers to accept a bid to buy the asset at the end of the period for the residual value.
You may either trade the vehicle in on a replacement, sell it to the financier and pay the difference between the residual and market value (residual risk), or even renew the lease for another year.
Operating/Maintained Lease
A fully maintained operating lease provides an organisation with the advantages of a hassle-free system of vehicle use. The lease is financed, so the asset does not show on the balance sheet. Expenses associated with the vehicle, such as repairs, insurance, and servicing, are covered by a single monthly charge.
Once you have decided on the car, you then need to determine the duration of the contract and how many kilometres you’ll drive in a year. The financier can calculate a monthly loan based on this. You return the vehicle to the lender at the end of the lease period, with no residuals or balloon payments necessary.
Novated Lease (Salary Packaging)
Novated lease is an agreement between an employee, an employer and a financier. Where a lease is taken out in the employee’s name, and the
employer agrees to take on the repayment obligations for the term of the employee’s employment. The contract is not recorded on the employer’s
balance sheet.
If the employee leaves this business, the lease may be transferrable to a new employer, or the employee may be responsible for the repayments without
help. The original employer then bears no financial obligation and will not be stuck with a car they no longer require.
What’s the benefit of a Novated Lease contract? The employee can benefit from a tax reduction due to the repayments being made with pre-tax dollars. As a result of the transaction between the employee and the company, there could be fringe benefits tax consequences, based on the car valuation and kilometres travelled. Therefore, collaboration with a mortgage broker and tax advisor is advised, as similar to a finance lease, residual risk rests with the employee.
Business Leasing FAQs
Is Vehicle Leasing Better Than Buying?
If you have a tight budget or wish to upgrade your car every few years, leasing a vehicle could be a safer option for you. Leasing also allows you to divide fees over a longer period of time, lowering your initial costs and improving your cash flow.
Furthermore, lease fees are typically treated as a business expense for tax purposes, lowering the net cost of the lease. The car, though, would end up costing you more than if you had purchased it outright. And because you do not end up buying it, there is no resale value for you.
When you buy a vehicle, its usable value will depreciate over time. This depreciation will be deducted from the tax bill by demanding capital allowances. If you require further assistance, please do not hesitate to call First Choice, we are one of Australia’s best business insurance brokers and we do everything possible to assist our clients!
Why are Business Leases Cheaper than Personal?
Business leases are often less expensive each month than personal leases since the owner can claim back 50% of VAT on a business lease. The owner can also claim fuel prices as part of the vehicle expenses and get a full tax refund on business-related mileage. In addition, it is possible to arrange a claim back VAT on personal journeys, speak to one of our mortgage brokers to see what they can do for you.
We will help you access the best loans and insurance for you. First Choice is one of the best financial advisers in Sydney, helping thousands of homeowners across Australia acquire competitive deals!
What are the Disadvantages of Business Leasing?
- When you factor in the monthly premiums, fines, and charges, it might end up costing the same or more than having a car loan.
- You will be unable to make any modifications to the vehicle.
- You cannot use the vehicle as collateral for any loans or financial transactions.
- If you have a poor credit background, you can be unable to obtain a lease.
- Once signed, you are locked into making payments for the loan duration, even if you stop using the vehicle.
Speak to a Mortgage Broker
You can make an appointment with a First Choice Mortgage Broker consultants by calling 1800 111 455.