Operating Leases

“An asset is rented for a predetermined set of time and usage. At the end of the time frame, the customer simply hands the asset back to the supplier or Lease Company, the customer has no ownership claim on the asset.”

The old saying “if you cannot afford to purchase then lease”, couldn’t be further from the truth. Only customers that are in a sound financial position can gain approval on lease deals through our sources.

Customers lease for a range of reasons, some of which are listed below;

• Assets are subject to high utilisation and are replaced on a regular basis
• Clients are unsure that the configuration or spec of asset will be required in the coming years, by leasing they do not need to worry about disposal of the asset
• Clients that are growing their business may look at leasing as it helps keep their balance sheet ratios (or equity in the business) intact
• Clients taking on new contracts may lease, as they can confirm the majority of their fixed costs
• Given clients can lease used assets for a short term period (6-12 months) at a reduced cost of hireage charges. In the past we have arranged leases on new, import and used plant and machinery
• Maintenance agreements can be included in your operating lease which helps control the fixed costs on your machinery

General information concerning operating leases

1. Operating lease payments are fully tax deductible on your profit and loss statements
2. An asset can be leased for 75% of its economic life (as outlined in the Inland Revenue Department depreciation schedules). An example of this is both heavy commercial trucks and excavators could be leased for a maximum period of 10 years.
3. Operating lease terms can be extended, provided the age of the asset does not fall outside of the timeframe as determined by the 75% of assets economic life rule. This can prove very cost effective as the lease price will be reduced, given payments are based on a lower initial capital cost.
4. Assets can be purchased at the end of the lease period at a “fair market value”. This value cannot be predetermined or written into the agreement from day 1, or it may be deemed to be a finance lease, which is subject to different tax treatment.
5. Operating lease approvals require financial information on the client's business
6. Operating lease agreements do not have the same flexibility as loan options, and as such advice from your accountant or financial advisor should be taken before entering into any lease agreement.