Equipment leasing reviewed

Leasing answers a different question from borrowing. Instead of “how do I pay for this asset?”, it asks “how do I pay for using this asset?”. For equipment that dates quickly, needs regular replacement or is only needed for a defined period, that can be the more sensible question. For assets you will keep for years, it is often not.

Two kinds of lease

Finance lease. The financier buys the asset you choose and leases it to you for an agreed term. You make regular payments and usually carry the responsibility for maintenance and insurance. At the end, there is a residual value, and depending on the contract you may pay it to keep the asset, refinance it, trade it in or return it. Economically it behaves a lot like owning; legally, the financier owns it until the end.

Operating lease. The financier owns the asset and rents it to you for a period shorter than its useful life. At the end, you return it, and often upgrade to a newer model. Some operating leases bundle servicing. It suits technology, medical and office equipment, and fleets where you want predictable costs and regular renewal.

Lease or loan: the key differences

	Finance lease	Operating lease	Chattel mortgage
Owner during term	Financier	Financier	Your business
End of term	Residual payment or return	Return or upgrade	Own outright after final payment
Typical tax approach	Lease payments	Lease payments	Depreciation and interest
Best for	Assets you may keep	Assets you replace often	Assets you keep long term

Tax and GST are treated differently across these structures, so it is worth a conversation with your accountant before choosing. The business.gov.au page on leasing or buying sets out the general considerations, and our chattel mortgage review covers the ownership alternative.

Costs to look for

• the regular lease payment and how often it is made;
• the residual value and how it was set;
• documentation, establishment and ongoing fees;
• insurance and maintenance requirements;
• charges for excess wear, usage limits or late return on operating leases;
• early termination costs.

Add everything up across the term and compare with the cost of buying the asset with a loan, including what you would get when you sell it. Our lease versus buy guide walks through the comparison.

When leasing makes sense

Leasing tends to suit businesses that value predictable costs, want to conserve cash, and use assets that lose value or relevance quickly, such as computers, specialised medical equipment or vehicles in a regularly replaced fleet. It makes less sense for durable assets that you would happily keep for a decade, where owning usually works out cheaper.

An illustrative example

A made-up medical imaging practice needs new diagnostic equipment that is likely to be superseded within five years. Buying outright would tie up cash the practice needs for staff and premises. An operating lease over a set term, with servicing included, gives a predictable monthly cost. At the end, the practice returns the machine and leases the newer model.

The same practice buys its reception furniture and fit-out with a loan, because those assets will be kept for many years and do not date quickly. Using two structures for two kinds of assets keeps costs aligned with how each asset is actually used.

End-of-lease decisions

With a finance lease, check well before the end date what the residual is and whether you want to pay it, refinance it or return the asset. With an operating lease, check the return conditions, such as wear-and-tear standards, usage limits and the notice period, so there are no surprise charges. Diarise the end date; automatic extensions can apply if you do nothing.

Exploring equipment leasing?

If you are weighing up leasing against buying for a specific asset, it helps to have both options in front of you. To explore what might suit, make one enquiry. There is no credit check when you first enquire, a real person reviews it and your details go to one lending partner, not a list. Tell us the asset, its approximate cost and how long you expect to use it. Those three answers in your enquiry point to the right structure quickly.