Commercial Hire Purchase (CHP)

Commercial Hire Purchase (CHP) is a widely used form of finance for many businesses as it is flexible, workable and suits a cash accounting method. CHP can be used to purchase many business items including most of the equipment required across all industry sectors, cars, other business vehicles, trucks, planes, boats and general business assets. Some lenders may have restrictions on what goods they will extend CHP loans to purchase, but in general, CHP covers a wide range.

This finance types suits businesses that use a cash accounting method. This may include:-

·         Sole Traders

·         Corporations

·         SMEs

·         Partnerships

Key Features of CHP

In essence, many of the features of CHP are similar to Chattel Mortgage but the differences lie in the title/ownership definitions. By definition, under a CHP loan agreement, the lender essentially purchases the goods and ‘hires’ those good to the borrower for a set monthly payment.

The lender retains ownership of the goods until all payments, including any balloon, are finalised.

  • During the CHP period, the borrower has full use of the goods and must cover all ongoing and operational expenses.
  • The interest rate for CHP is usually at a fixed rate.
  • CHP term is fixed.
  • Monthly CHP payments are fixed for the term of the loan.
  • A balloon is optional. This is a percentage of the purchase price which is deferred for payment in full after all monthly repayments have been finalised.
  • GST is applied to the purchase price of the goods and can be claimed by the borrower in the relevant BAS period.
  • GST does not apply to the monthly repayments or balloon as it has already been claimed on the initial purchase price.
  • GST does not apply to the interest.
  • GST does apply to fees and charges and can be claimed in the BAS period when paid.
  • The full monthly repayment and balloon are not tax deductible, only the interest charges are deductible.

Sourcing a Commercial Hire Purchase Loan

Many banks and finance companies that are actively involved in the business finance sector offer Commercial Hire Purchase for a range of purchases. Some may have limitations and restrictions on what equipment they will finance and some have maximum and minimum limitations on the amounts they will finance.

A professional finance broker is ideally positioned and qualified to source you a CHP and offers many benefits and advantages over you sourcing your own loan directly with the bank or lenders. To source a number of loan offers in order to compare will be time-consuming for yourself, while a finance broker has access to multiple sources and is better placed to handle this for you.

If you do have specific reasons for wanting your transactional bank to extend your CHP most finance brokers will handle the negotiations with your bank on your behalf.

We know people who operate in the finance broking area and we welcome your enquiry for further information or contact details to assist you.