Operating Lease

An Operating Lease is a simple and cost-effective way for businesses to secure the necessary vehicles or equipment, roll maintenance and repairs into the package, and claim tax benefits. Why spend more to buy when you can pay less to rent? An operating lease is a simple and cost-effective way for businesses to secure the necessary vehicles or equipment, roll maintenance and repairs into the package, and claim tax benefits. 

An operating lease is a contract that allows for an asset’s use but does not convey ownership rights of the asset. The lender will generally be responsible for the maintenance and service of the asset during the lease period. This allows your business to use the equipment without incurring the high expenses of purchasing it.

Similar to a commercial hire purchase, it’s also a good option for low-value equipment and technology with a short life span and quick obsolescence or equipment that needs to be upgraded frequently.

It’s a good solution for a business that wants to avoid taking on the risk of obsolescent or depreciating assets such as technology with a short life span. And you want to be able to update or upgrade the asset regularly. You’ll also enjoy tax-deductible lease payments and keep them off your balance sheet.

An operating lease allows a business to use the asset while ownership remains with the financier. At the end of the lease, you return it without balloon payments or complications of disposing of obsolete assets. So, it’s ideal for businesses that need to upgrade regularly or want access to the newest models. The two key benefits of an operating lease are that you carry no residual value risk and can combine most of your asset’s running costs into a single monthly payment.

• No balloon payments or residual value risk
• All running costs, maintenance, and repairs are paid for in a single monthly payment 
• Minimal risk of obsolescence as there are no ownership obligations
• Lease payments will generally be tax-deductible
• No liability on the balance sheet as it is considered to be off-balance sheet financing
• Renting is generally more affordable than purchasing
• No cost to dispose of the asset once the contract ends
• End-of-lease flexibility to renew at a discounted rate
• Option to purchase used equipment for fair market value (FMV)

Like a trade and finance loan, operating lease helps businesses bridge their cash flow gap.

• Hospitality
• Restaurants & cafes
• Catering 
• Construction
• Mining
• Medical 
• Tradies
• Manufacturing 
• IT Companies
• Professional Services

An Operating Lease is a low-cost way for businesses to rent necessary vehicles or equipment. You rent the asset for a set time, making regular lease payments. You have exclusive rights to use the asset during the lease term, but you do not own it. You return it to the lender at the end of the term, so you’re not tied down to a depreciating asset, although you can choose to lease it again if you wish.

Because your payments are not equal to the total value of the asset, you don’t have to pay a residual (balloon) payment at the end of the term. This makes an Operating Lease generally cheaper than a Finance Lease.

Loan terms are usually short, allowing you to upgrade the asset regularly and go for a newer model. They also come with less risk. The lender maintains liability for the asset. They take on the risk of the purchase and the resale. Your main obligation is to meet your repayment obligations.