When businesses think about financing assets, they often picture buying outright or taking out a loan. But there’s another option that can make a big difference; the finance lease. Let’s break it down.
A finance lease is a way to use an asset while spreading the cost over time, with the option to own it at the end of the term. You make regular payments throughout the lease, and depending on the agreement, you may have the choice to purchase the asset for a residual amount.
Unlike a simple rental or a chattel mortgage, a finance lease is off-balance-sheet, meaning the asset doesn’t appear as a liability on your company’s balance sheet. Your lease payments are also fully tax-deductible, treated like a rental expense. In comparison, a chattel mortgage is on-balance-sheet, where you own the asset and depreciate it over time.
Example:
Let’s say your business enters a finance lease for a $60,000 truck over 3 years. You make fixed monthly payments for the truck, and at the end of the term, you can pay a residual amount to take ownership. This lets you access the asset you need without the full upfront cost, maintain predictable payments, and keep the asset off your balance sheet while fully deducting your lease payments.
A finance lease can be useful if you:
✅ Want to eventually own the asset without paying the full purchase price upfront
✅ Prefer predictable, fixed payments for easier budgeting
✅ Need to preserve cash flow for other priorities
✅ Want to keep the asset off your balance sheet while still enjoying tax benefits
✅ Want flexibility to upgrade after the lease term while still having ownership options
It’s popular with businesses that rely on vehicles, machinery, or equipment for long-term operations but want a structured, cost-effective way to finance them.
A finance lease might not be the best fit if:
❌ You only need the asset short-term and don’t plan to own it
❌ You prefer to pay outright and avoid residual payments
❌ Your business isn’t able to commit to a longer-term financial arrangement
In those cases, an operating lease or rental agreement may be better suited.
Finance leases provide a flexible, predictable way to access the assets your business needs while offering a pathway to ownership. With off-balance-sheet treatment and fully tax-deductible payments, they are ideal for businesses looking to manage cash flow, plan budgets, and invest in long-term resources.
If you’re considering a finance lease for your next vehicle or piece of equipment, we can help you compare options and find the right fit.
Book in to speak to one of our brokers here.
