Hire-purchase finance

Hire-purchase is a commercial finance product that enables a financier to purchase energy efficiency equipment on behalf of your business.

The financier agrees to give you use and possession (hire) of the equipment in return for regular installments. Once the final payment has been made to the financier the customer takes ownership of the energy efficiency equipment.

Hire-purchase finance may be a good fit if your business:

  • needs to maintain cash flow
  • wants the asset off the balance sheet
  • requires ownership the asset at the end of agreement
  • needs to upgrade to energy efficiency equipment.

How it works

  1. The customer enters a hire-purchase agreement with the financer
  2. The financer purchases equipment for the customer
  3. The customer has hire of the equipment in turn for regular payments
  4. Once the last payment is made the customer takes ownership of the equipment.
  5. The financer owns the asset resulting in an off-balance sheet finance arrangement for your business. As your business pays installments back to the financier, these payments may be deductible at your company tax rate. Seek specific tax and accounting advice for your situation.

A good place is to contact your bank directly and ask about their energy efficiency hire-purchase options

Loans amounts are between $7500 and $5 million. Contact your bank to understand their amounts. Terms range between one to seven years depending on the type of loan, bank and amount.

The interest on the finance and depreciation of the asset may be tax deductible. Please seek advice from an accountant for more information.

Advantages

  • Most major banks and financiers offer Hire-purchase finance. Currently some financiers provide concessional finance for energy efficiency equipment upgrades. Visit the Clean Energy Finance Corp website
  • No upfront capital or security. Hire-purchase allows for energy efficiency projects to be undertaken and may require some upfront capital or security of existing business assets. This may assist your business in accessing finance for future business growth over a longer term
  • Realise savings immediately. Financing energy efficiency projects can result in immediate cash flow benefits for the business. Energy efficiency projects can result in higher savings than loan costs.

Disadvantages

  • Project risk. As the business is considered the owner of the asset, the business bears the risk associated with owning the asset. Hire-purchase finance may be more appropriate for larger equipment that is easy to remove and where costs are predominately for physical assets
  • Size and length limitations apply. Leases have a minimum project cost as well as a maximum length of around seven years
  • There are no specialised benefits. Unlike other options, hire-purchase finance doesn’t guarantee things like performance or maintenance of equipment
  • Creditworthiness. Your business creditworthiness may have an impact on finance availability and rates which are offered. 

More information

Businesses can also receive a discount on energy efficient products that are installed by accredited Victorian Energy Upgrade providers. For more information visit the Victorian Energy Saver's energy advice for business webpage.

Want to know more? Get in touch with:

Vivek Kotak

Sustainable Finance Lead

+61 3 8626 8781

vivek.kotak@sustainability.vic.gov.au

Download

Hire-purchase finance fact sheet

Hire-purchase is a commercial finance product that enables a financier to purchase energy efficiency equipment on behalf of your business.

Correct as at January 2018.

Sustainability Victoria
Level 28, Urban Workshop,
50 Lonsdale Street, Melbourne VIC 3000
Phone (03) 8626 8700
sustainability.vic.gov.au
Published by Sustainability Victoria.
Sustainable Finance – Hire Purchase
© Sustainability Victoria January 2018

Disclaimer: The information provided in this document is general advice only. It does not take into account your particular needs or objectives and does not constitute legal or accounting advice. Accordingly, any comments or statements made are not a recommendation that a particular course of action is suitable for you and you need to seek your own legal, tax and accounting advice in relation to your specific circumstances.

This information is true and correct as of January 2018