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A Finance Lease is a finance agreement which gives
you (the lessee) the use of property owned by the Financier
(the lesser), for a stated period of time in return
for regular payments (lease rentals) which are generally
tax deductible.
The key feature of a lease is the separation of ownership
and use of the leased asset. The lesser retains legal
ownership of the assets receiving all lease rentals
under the agreement and is entitled to the return of
the assets that are subject to the lease. The lessee
has the possession and right to use the assets for the
term of the lease in consideration for which the lessee
makes lease rentals to the lesser.
A Lease normally has provision for a predetermined
residual value to be satisfied at the end of the lease
term. At this stage, you may wish to re-lease the goods
or to satisfy your obligations with regards to the residual
value.
This non-equity form of financing enables you to free
up cash resources from the purchase of assets for other
uses. The rental nature of a lease also assists insulate
a business from technological obsolescence.
Benefits of a Finance Lease:
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Preserve the existing cash and credit facilities
of your business. Your funds can either be invested
in more productive areas of your business, or maintained
to take advantage of an unexpected business opportunity
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Specific asset security. You do not have to tie
up additional business and/or personal assets.
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100% financing of the value of the goods.
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Fixed cost contract. A fixed rate and term make
for accurate budgeting and also provides a hedge
against inflation.
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Lease rentals can be specifically structured to
suit your business cash flow.
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Lease rentals, and the associated costs of running
the specific asset, are allowable tax deductions
if the asset is used to generate assessable income.
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Finance Leases are off-balance sheet transactions
and require minimal business administration.
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Residual value is predetermined.
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