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Car Lease :: Low, Lo Doc Car Loan | No Doc Car Loan | Car Leasing :: Finance Definitions |
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Finance DefinitionsiLAB Pty Ltd trading as Just a Minute Business Solutions www.justaminute.com.au and www.business-plan.com.au has made every effort to ensure that the material contained on this page is factually correct as at July 1, 2005. However, iLab Pty Ltd does not purport to provide taxation or legal advice and, accordingly, recommends that you consult your legal, financial or taxation advisors for specific advice suited to your circumstances. iLab Pty Ltd will not be liable for loss or damage sustained by a person or persons acting in reliance of this material. 2. Finance Lease A traditional form of finance for the professional or corporates, mainly used when purchasing motor vehicles and plant & equipment for business purposes. A Finance Lease allows the client (the lessee) the use of the goods for the specified period. The person who grants the lease (the lessor) remains the owner of the property until all rentals have been paid, including the Residual Value. The finance lease contract will always have a residual value that is guaranteed by the client (lessee). This residual value amount must be paid out at the end of the contract period before ownership can be transferred to the lessee. Finance Lease monthly rentals are calculated on the net purchase price and GST is added to the monthly repayment. A typical lease structure has a term of two to five years; the residual value is usually nominated by the client. 3. Sale & Hire Back (for equipment) This facility is generally available for equipment or vehicles that have been purchased within the previous three months. Using a Sale & Hire/ Back facility, the client can refinance their existing vehicle or equipment to the financier. The equipment is then hired or financed back to the client over pre-agreed terms. Sale & Hire Finance Back can provide your client with valuable cash-flow enhancements. Chattel mortgage finance would be the typical finance instrument when considering this method of refinancing. Selling the goods to a financier may incur a taxation liability, whereas committing to a chattel mortgage agreement over the goods does not allow title to flow. The financier simply has a charge over the goods. (Consultation with the client's accountant is always recommended when financing is raised in these circumstances.) 4. Asset Purchase - Commercial Hire Purchase Asset purchase is ideal when financing Motor Vehicles, Business Plant & Equipment, Luxury Assets as well as all of forms of Office Equipment. The contract is a legally binding agreement between the financier and the hirer (the client) where the amount repayable is calculated over a fixed term and fixed rate with the option of a balloon payment. An Asset purchase agreement will normally run the full term otherwise penalties may be incurred if it is terminated early. When you wish to own the asset from the outset, this type of purchasing finance is an alternative to leasing. A typical Asset Purchase structure has a term of two to five years with payments made monthly, although other options are available. You have a choice of a balloon payment depending on usage and depreciation of the goods. GST is usually financed over the term of an Asset Purchase agreement; however, it is not uncommon to pay the GST up front in order to claim it immediately. 5. Rental Agreement Rental financing allows for the upgrade of equipment during the life of the contract, and is extremely attractive for businesses where cash flow is vital and the ownership of equipment that has a high obsolescence rate is not critical. Rental agreements are designed to accommodate upgrades and additions during the contract period and are usually in conjunction with the supplier of the goods. Rental is ideal for technology based equipment: for example, computers, photocopiers, communication equipment, office, medical, scientific equipment, etc. Rental provides the clients with all the benefits of using the equipment without the ownership. At the end of the rental period, the equipment can be handed back with no obligation or purchased at an agreed value. Implementing a Rental solution allows your capital to be invested in the business and not tied up in rapidly depreciating assets with limited resale value. 6. Operating Lease Operating Lease is an "off balance sheet" financing procedure, which provides all the benefits of ownership without the end risk of a residual value commitment and is always business related. This method of financing is ideal for business' that enters into a contract to supply goods and services for a predetermined period, say 5 years they require specific equipment for the term of the contract. At the end of the term, say 5 years; there may not be the opportunity to extend goods & services contract further and therefore the equipment that has been financed is no longer required. Additionally, if the equipment is required on a month-to-month basis a rental arrangement maybe negotiated without entering into a long term agreement. To maintain taxation guidelines a "residual value position" will be required by the financier, this amount will usually be guaranteed by the supplier, insurance company or a third party; this residual risk position indemnifies the financier that the residual value will be paid at the expiration of the lease term. The rentals are treated as an expense, and ownership may be negotiated for a fair market value at the expiration of the agreement. Operating Leases for motor vehicles are more widely accepted as a traditional way to finance business fleets. Motor vehicle manufacturers will need to guarantee the residual value of their product in order to compete in the motor vehicle fleet market. At the expiration of the lease period the lessee returns the vehicle (under the prescribed conditions) and there is no further obligation. 7. Master Finance Agreement A Master Finance Agreement (Lease Finance, Asset Purchase or Chattel Mortgage) is recommended for businesses and government departments which continually purchase plant and equipment on a regular basis. A standard Master Finance Agreement is signed from the outset by the company's authorised signatories, this will allow settlements to occur at short notice. A line of credit is approved to a limit and subsequently a schedule will be signed to confirm the goods and the term. Master Finance Agreements allocate the funding necessary for current and future equipment rentals, removing the need for additional contracts, and providing the client with access to multiple draw - downs over the period of the agreement. Each draw down requires a rental schedule to be produced and signed by the authorised signatory. 8. Chattel Mortgage Chattel Mortgage Agreements register a Bill of Sale/Chattel Mortgage/Debenture in favour of the lender. Normally the total Stamp Duty (where applicable) is payable up front. This facility is ideal for clients who operate their accounts on a cash basis and wish to claim the GST up front as input tax credit. This facility can be structured similar to an Asset Purchase or Finance Lease facility. The term is usually two to five years and a balloon amount can also be included into the loan depending on usage and depreciation of goods. This facility is ideal when financing motor vehicles. The Australian Taxation Office explains that "a chattel mortgage is a security over chattels (that is, movable articles of property) held by the lender giving the lender recourse against the chattel in the event of default by the borrower." "Under a chattel mortgage, the purchaser takes title in the chattel from the time of purchase. The purchaser (the borrower) finances the purchase price (or part thereof) of the chattel by way of a loan, obtained from a lender, and applies the borrowed funds as payment to the supplier for the chattel." "A hire purchase agreement is a contract for the hire of goods where the title in the goods remains with the financier and does not pass to the purchaser until either the option to purchase is exercised by the purchaser, or the final instalment is paid. This is a fundamental difference between a chattel mortgage arrangement and a hire purchase agreement." 9. Consumer Loan A typical consumer loan will be used by an individual to purchase a motor vehicle, boat or other asset that has no business use for the goods. The facility is for personal use only. A consumer based loan requires the goods to be used as the security for the loan. This facility falls under the consumer credit code (UCCC). The interest rate, commission and other fees are disclosed on the contract. All consumer credit conditions apply to this loan. This facility can be structured with a balloon payment. The term is usually two to five years. 10. Personal Loan (unsecured) This is an unsecured personal loan facility. This loan falls under the consumer credit code (UCCC). The term of the loan can range from three to seven years. This loan is ideal for debt consolidation. 11. Novated Lease Tripartite Agreement between a finance company, employer and employee enabling the packaging of motor vehicles for employees. An employee leases a motor vehicle from the financier using a standard finance agreement. A Deed of Novation is then entered into between the employee, the employer and the financier under which the employee's obligation to pay the lease rental under the finance lease is transferred to the employer for the term of the Deed of Novation or term of employment. Therefore, the employer pays the lease rental to the financier. The amount of the lease payment will be deducted from the employee's pre-tax salary as part of the employee's salary package. The Australian Taxation Office, as of 1st July 2005, states that "a novated lease refers to an arrangement whereby all or part of the lessee's rights or obligations under the vehicle lease are taken over by an employer. The lessee is usually the employee. However, the lessee may be an associate of the employee. In this case, the associate's rights or obligations under the lease are taken over by the employer." "On payment of the last lease payment, or on termination of employment, a further novation may occur. The deed of novation usually contains a clause stating that on the earlier of, say termination of the lease or cessation of employment of the employee, the employer's obligations under the deed of novation are novated to the employee who again becomes the lessee. In the case of cessation of employment this enables the employee to enter into a new novated lease arrangement with another employer." What are the types of novated lease arrangements? There are two main types of novation arrangement: The GST consequences differ between the two types of novation arrangements due to the different flow of supplies between the parties under each arrangement. 12. Fleet Leasing When a business had decided to purchase a fleet of motor vehicles we are able to arrange a Master Lease Facility or a Fleet Management Package. This facility is ideal for business or companies when purchasing a number of vehicles for their business operations. This is a cost effective method to manage a number of vehicles where maintenance, insurance and re-payments are included in 1 total rental. Fleet Leasing is ideal for government departments, corporations and companies with a fleet of motor vehicles in excess of 10. 13. Insurance Premium Finance The increasing costs of insurance, have seen a number of financiers providing Insurance Premium Finance to conserve cash flow, allowing you to pay your business insurance or workers compensation premiums monthly . Premiums from $1,000 can be financed. Term: minimum six months, maximum twelve months. 14. Factoring - Invoice Discounting Invoice Discounting is simply the use of outstanding trade accounts to raise working capital. It is a means of accessing funds by using your business debtor's as security to bridge the cash flow gap between the time when your products and/or services are provided and/or the time payments are received. How does Invoice Discounting work? As you deliver your goods/services to your customers, the invoices you raise are sold to the financier company, freeing up to 80% of their value almost immediately. The remaining 20% is advanced when the debtor pays. Funds raised are usually deposited to your bank account within 24 hours. You retain control over your accounting functions, credit management and collections and, most importantly, the ongoing relationship you have with your customers. Invoice Discounting usually has two methods of disclosure: a fully disclosed facility where your debtors are aware that you have financed them; or alternatively, an undisclosed facility that does not highlight the financier. 15. Insurance Requirements All asset Finance that Probitas Asset Finance underwrites will require General Insurance cover prior to settlement. As part of our on going commitment to quality service PAF has organised a 14 day Comprehensive Insurance cover at very competitive rates for all motor vehicles that are financed. This will ease any settlement issues when collecting your motor vehicle. An insurance representative will contact you prior to the settlement and request information, so that the "Auto Insurance "can be activated. You will receive an obligation free insurance quote, and you will have 14 days to confirm that you wish to proceed with cover. Alternatively you may provide details of cover from your current insurance representative. General Insurance is also available through this service for all other assets financed with Probitas Asset Finance. If convenient our representatives will be pleased to provide a comprehensive service review all your general insurance policies for your existing business. for details.
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