What is a SMSF?
2nd May 2022
According to the Australian Bureau of Statistics, over 2.4 million businesses were trading in Australia in June 2021. To continue driving economic growth, these businesses require access to capital allowing them to expand and create new opportunities. Equipment finance is an affordable option for small-to-medium businesses. It allows them to purchase new or used equipment, with little or no upfront capital investment.
Service industry businesses may be looking to purchase and upgrade items such as computers and other technology as well as office furnishings and fittings. While those in the manufacturing and construction industries may be looking to finance plants, machinery and other large ticket items. All with the purpose of improving productivity and keeping their business moving ahead.
This guide will help you understand the different types of equipment finance, as well as how to go about securing finance for your business.
What is equipment financing?
As a small-to-medium business, you will need all types of finance to keep your business running smoothly. This can include short-term working capital loans or a long-term secured commercial loan, used to assist with the purchase of your premises. Equipment finance lies somewhere in the middle. The length of the loan or lease is generally from one year to five years however, it can be negotiated up to seven years. The lender considers the anticipated life of the equipment and sets the length accordingly.
What finance options are available?
When looking to purchase equipment, including vehicles, businesses have several financing options available. The two most common are a lease or chattel mortgage.
Commercial Lease
A commercial lease is generally for a two-to-four-year period. It is important to remember that the business does not take ownership of the equipment so there will be limitations on modifications and its use. At the end of the lease term, there may be the ability to purchase the equipment by paying a 'residual' value, a new lease can be entered into, or the goods can be handed back.
A lease can be an affordable option for a new business, however, there are drawbacks to consider. To find out more information on a lease, read our blog 'The Pros and Cons of a Car Lease'.
Chattel Mortgage
A chattel mortgage is like a fixed-rate home loan; however, rather than the loan is secured by real estate, it is secured by the vehicle or other equipment, known as the chattel.
The business will make regular payments for an agreed term which can range from one to seven years.
At the end of the loan period, the business may be required to pay a lump sum known as a balloon or residual payment. To cover this payment, the business has several options:
- pay the amount from their working capital
- sell or trade in the equipment or
- retain the equipment by refinancing the loan.
For further insight into a chattel mortgage, read our blog 'How to use a Chattel Mortgage to Finance Your Business'.
A chattel mortgage sees ownership transferred to the business straight away. However, if you were to default on your lease or loan, the lender will be permitted to repossess and sell the equipment.
Types of Equipment Financed
Purchasing equipment is more than a car loan! Businesses need equipment to operate efficiently, expand and get ahead of their competitors. Here are some of the big-ticket items that a business may require an equipment loan for:
- Restaurants: commercial freezers, dishwashers, fridges, and ovens
- Building and Construction: earth moving equipment, cranes, trucks, and vehicles
- Freight: trucks, vans, and trailers
- Farming: equipment such as tractors, tillers, harvesting equipment as well as vehicles
Business Equipment Financing Guide for 2022
Keeping your business running efficiently and running costs down contributes to increased profitability, hence the need for upgraded machinery and regular maintenance.
5 Benefits of an Equipment Loan
- You can customise the loan to suit your businesses needs
- You choose the term – usually from one to five years but can be extended up to seven years in some cases
- You choose an affordable repayment which suits your cash flow
- You can decide on the balloon or residual amount owing at the end of the loan term:
- Pay a lower monthly repayment while having a higher balloon payment at the end of the loan term or conversely, by
- Paying a higher repayment to reduce or even eliminate the balloon payment altogether.
- You may be entitled to tax benefits including GST credits and Instant Asset Write-Off (speak with our accountant for further information on your eligibility)
Applying for finance is simple!
If you are:
- 18 years or over
- Eligible to work in Australia
- An ABN holder and
- Financing equipment that will be used by a business (mostly or entirely for business purposes)
And your business has:
- Been trading for more than 12 months
- A good credit rating
You are eligible to apply for an equipment loan!
If you don’t think you meet the eligibility requirements, don’t worry! One of our qualified finance brokers may be able to assist you with an alternative solution.
Talk to an equipment finance specialist at Finance Brokers NSW
As experts in small business and equipment financing, we take the time to get to know your business. Not only will we save your credit rating, but we will find a financial option to meet your specific needs.
Talk to us today and find out how equipment finance can help your business grow.
