A Lo Doc Operating Lease is a standard operating lease or rental which may be approved without the applicant needing to provide financial information. An operating lease has become the preferred option for Australian businesses funding business equipment. At its simplest it is a fixed term rental at a fixed monthly rate. The lessee never owns the equipment but simply rents. At the end of the fixed term the lessee may return the equipment, continue to rent or make an option to purchase. Unlike a finance lease the purchase option is not an obligation or fixed commitment. Some rental agreements such as fully maintained car leases or print management plans can include equipment service charges and provide the lessee an all in one
payment plan.
Pros
generally required
no obligation to pay out a residual
approve more transactions
Cons
end of the term
Operating leases have increased in popularity with Australian businesses. Business is increasingly foregoing owning equipment which has nominal resale value and a reduced optimal life.
The main reasons for this are:
1. Greater competition amongst operating lease providers on pricing and generally approval of more transactions.
2. The lower useful and optimal life of equipment for business with equipment becoming out of date sooner.
Lease payments are generally treated as a expense item meaning that 100% of
monthly payment amounts may be expensed.
