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Commercial Hire Purchase CHP

Thu, 2008-04-24 09:21 — Broker

Commercial Hire Purchase (CHP)

CHP is a commonly used equipment financing product for business purposes. Generally a Commercial Hire Purchase allows the borrower the flexibility to utilise equity or a cash deposit to reduce the amount financed, unlike a finance lease where equity is not permitted. There is also flexibility when setting the balloon value, i.e. the final instalment.

With a Commercial Hire Purchase the borrower may choose to fully amortise the amount financed or for cash flow purposes set a balloon value hence reducing the rental repayment amounts. All asset types can be financed under a CHP.

The CHP is a fixed interest product with terms usually varying from 12 to 60 months. Monthly payments are generally calculated in advance and a Commercial Hire Purchase borrower may often also choose to structure the payments to suit their cash flow, for example bi-annual payments.

A borrower choosing to finance an asset under a CHP must also consider the GST impact. GST can be claimed by the financier on the supply of the asset, while the hirer has a liability for the GST on the supply of the finance. Claiming this GST will be different for a client set up on the cash accounting method as opposed to a client set up on the accruals accounting method.

Under a CHP the GST inclusive price of the asset is financed and there is no GST payable on the monthly instalment, balloon or payout amounts.

Obviously as a borrower you should seek advice from your accountant or financial adviser when considering the motor vehicle or plant and equipment finance option that best meets your needs.




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