With every business expansion, there is added responsibility of taking more and more decisions regarding the finance options of your plant, machinery and vehicles. The decision to make the investment from the available cash flow of the enterprise or getting it financed affects on your business’ cash flow as well as tax liability. What is best for the business greatly depends on its present conditions and market circumstances.
In the present economy, equipment finance or leasing is a very lucrative option where every business house is trying to outrun its competitors in terms of higher profits and lower tax liabilities. Manyentrepreneurs are availing the leasing services provided by the banks, accountants and finance brokers to make purchases for their business, be it a machinery, tractor a vehicle or even a piece of art. Instead of shelling out from their working capital, more and more businessmen are taking the unconventional leasing route to acquire most business items.
Concept
Leasing is an answer to one of the trickiest conundrum of present world entrepreneurs – how to meet the ever rising expenses with limited financial resources. In this method, the purchase item itself is treated as a collateral security for a loan payable on installments. At the term end, the transference of ownership depends on the purchased product and the facility utilized.
Sources
Previously a business owner would have to visit a major financial institution like a bank, an insurance firm or a financial broker to avail such services. But because of the growth potential, today numerous financial brokers, accountants and even financialplanners are readily offering such services to their clients.
Categories
Basically there are five different kinds of leasing option available to every business house namely, operating lease, hire purchase, finance lease, chattel mortgage and novated lease. In most of these options the business owner has the facility to purchase the leased item at the end of the term by paying the residual amount. However no such option is available in an operating lease contract. Such options facilitate the business to make use of the latest technology and opportunity without hampering its cash flow or capital structure.
Basis of selection
A word of caution for a business owner looking for a competitive leasing deal is to avoid being prey to the appealing caption rates. The general rule for shopping different forms of loan (mortgage or investment) doesn’t help in selecting the best lease deal as the interest rates might be lucrative but the monthly repayments might not be.
An ignorant buyer might opt for the lowest interest rate, but if the commission payable to the broker is added to the installments it will adversely affect him. In such a case low rate of interest will never reflect the actual potential of the deal. The best method of comparison is on the basis of the dollar value that you are being charged per month.
Equipment finance is mostly restricted to the business firms as they can claim GST on the purchase price along with the loan (depending on the facility opted). Even salaried employees can lease a car for personal use but there are no tax advantages in the same.
In the present economy, equipment finance or leasing is a very lucrative option where every business house is trying to outrun its competitors in terms of higher profits and lower tax liabilities. Manyentrepreneurs are availing the leasing services provided by the banks, accountants and finance brokers to make purchases for their business, be it a machinery, tractor a vehicle or even a piece of art. Instead of shelling out from their working capital, more and more businessmen are taking the unconventional leasing route to acquire most business items.
Concept
Leasing is an answer to one of the trickiest conundrum of present world entrepreneurs – how to meet the ever rising expenses with limited financial resources. In this method, the purchase item itself is treated as a collateral security for a loan payable on installments. At the term end, the transference of ownership depends on the purchased product and the facility utilized.
Sources
Previously a business owner would have to visit a major financial institution like a bank, an insurance firm or a financial broker to avail such services. But because of the growth potential, today numerous financial brokers, accountants and even financialplanners are readily offering such services to their clients.
Categories
Basically there are five different kinds of leasing option available to every business house namely, operating lease, hire purchase, finance lease, chattel mortgage and novated lease. In most of these options the business owner has the facility to purchase the leased item at the end of the term by paying the residual amount. However no such option is available in an operating lease contract. Such options facilitate the business to make use of the latest technology and opportunity without hampering its cash flow or capital structure.
Basis of selection
A word of caution for a business owner looking for a competitive leasing deal is to avoid being prey to the appealing caption rates. The general rule for shopping different forms of loan (mortgage or investment) doesn’t help in selecting the best lease deal as the interest rates might be lucrative but the monthly repayments might not be.
An ignorant buyer might opt for the lowest interest rate, but if the commission payable to the broker is added to the installments it will adversely affect him. In such a case low rate of interest will never reflect the actual potential of the deal. The best method of comparison is on the basis of the dollar value that you are being charged per month.
Equipment finance is mostly restricted to the business firms as they can claim GST on the purchase price along with the loan (depending on the facility opted). Even salaried employees can lease a car for personal use but there are no tax advantages in the same.