When you lease a business premises, you pretty much have full use of the place and cover the maintenance costs without actually owning it or having the liability of the purchase price on your balance sheet. Financing a truck purchase through a leasing finance agreement operates in a similar way.
With leasing, you agree to a term of the lease (loan) with the lender, set a monthly repayment figure which is set over that term with the possible inclusion of a residual. On approval of your loan and finalising the heavy vehicle or tailer purchase, you have full use of that truck. With some leasing you’re responsible for the ongoing maintenance and costs and with other types of heavy vehicle leasing, you can build the maintenance and ongoing costs, such as rego and insurance, into the monthly leasing payment.
However, the ownership is legally retained by the lender for the term of the lease. When you finalise all payments, including the residual, then you take legal ownership.
Under some types of equipment leasing, if at the conclusion of the lease period you choose not to payout the residual, the lender continues ownership and can dispose of the vehicle as they wish. That is, you effectively hand it back to the lender.
So why would a business want to make monthly repayments on a truck that they don’t actually own?
The benefits of leasing as a financing structure depend on the type of business and include improving the company’s balance sheet, placing an absolute fixed costs on operating expenses and where trucks are heavily used and need replacing very regularly.
Types of Truck Leasing
Compared to other types of truck financing products, truck leasing requires quite a technical explanation and discussions with your accountant are advised to ensure you arrive at an informed decision for your business.
There are 3 types of truck leasing, each with slightly varying features and benefits.
Finance Truck Lease
- The full purchase price of the truck is included in the lease, no deposit is required, which frees up existing funds.
- In conjunction with your Jade Consultant, you decide on the terms of the lease, 1 year/12 months to up to 7 years/ 84 months.
- The leasing finance is calculated on a fixed interest rate over the term of the lease.
- A monthly repayment amount is fixed so you can manage your cash flow, with a residual or balloon payable at the end of the loan term.
- The lender claims the GST on the purchase price while you, the borrower, claims the GST applicable to the monthly payments and the balloon.
- Monthly payments are tax deductible and residual payments subject to Australian Taxation Office guidelines.
- When all payments are finalised, ownership is transferred from lender to borrower.
- The borrowing company’s balance sheet does not have the liability of the full purchase price, only the monthly payment as operating expenditure.
Operating Truck Lease
This type of truck finance is attractive to businesses which need to upgrade regularly.
The key differences from a Finance Lease are:-
- You essentially lease or rent the truck from the lender and at the end of the lease term, hand the truck back to the lender. There is usually an option to purchase the truck from the lender at market price.
- The truck appears on the lender’s books, ie an off-balance-sheet structure for the borrower.
Fully Maintained Operating Truck Lease
The key difference from an Operating Truck Lease to a Fully Maintained Operating Truck Lease is that the running costs for the truck are included in the monthly leasing repayment. With the costs of truck maintenance, registration, fuel and other expenses included upfront, enables the borrower to better budget for their ongoing overall expenses and better manage profit projections.
If you would like more information on the details of leasing, speak with a Jade Truck Finance Consultant in the first instance but we do advise all our truck finance clients to discuss their business arrangements with their own accountant.
Get in touch with a Jade Truck Finance Consultant to discuss arranging a Leasing deal for your truck purchase. Call 1300 000 003