Rent to Own

Rent to Own is often referred to as an Operating Lease and can be used for a range of business equipment and vehicle purchases. Most commonly it is used for the purchase of cars and trucks. It is an off-balance sheet finance facility which is suited to businesses that do not wish the goods/asset being purchased to appear on their business balance sheet as an asset/liability.

In this case, the item appears on the balance sheet of the lender company, thus improving the balance sheet of the borrower.

This finance types suits businesses that use an accrual accounting method. This may include:-

·         Sole Traders

·         Corporations

·         SMEs

·         Partnerships

Key Features of Rent to Own

The borrower selects the equipment/goods that they wish to purchase and the borrower effectively purchases the goods in title and ‘rents’ the goods back to the borrower at a fixed monthly rental payment over a fixed loan term.

·         The borrower has full use of the equipment during the loan term and is responsible for all ongoing expenses incurred in the use. For a car that will include rego, insurance, servicing etc.

·         The interest rate is usually fixed for the loan term

·         The rental agreement period (loan term) is fixed. This may subject to lender guidelines and the value of the goods.

·         The monthly repayment (rental) is fixed.

·         When all payments are finalised at the end of the rental agreement term, the borrower can negotiate a buyback price with the lender to take ownership of the goods.

·         The monthly payments are considered as an operating expense and are tax deductible.

·         GST applies to the monthly payment and is claimed in the relevant BAS period. GST does not apply to the interest charges.

·         Off-balance sheet facility. The goods appear on the lender’s balance sheet not that of the borrower.

Sourcing a Rent to Own Loan

Rent to Own is a more specialised form of business finance than say a Chattel Mortgage, but some banks and finance companies do offer this facility for some business purchases.

An attractive option to approaching the bank yourself is to use the services of a finance broker to arrange a Rent to Own loan for your business. When selecting your broker, one of the key issues is to ensure that they are completely independent of any finance companies or banks but are accredited with a great many banks and especially have access to industry-only sources.

This assures you that your broker will have access to many loan sources and will be presenting you with the best offer available.

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