Importance Of An Equipment Finance Loan

Every business understands the significance of purchasing, upgrading, or replacing the machinery needed for daily operations. However, many businesses don't always have the cash flow required to purchase the equipment required. Business equipment financing can be essential during such times.  Today, we will take a look at some of the factors that make equipment finance loans so critical for a business.

What is Equipment Finance?

An equipment loan allows businesses of all sizes the ability to borrow money to purchase new equipment or good quality used or refurbished equipment. Generally, the equipment you purchase is used as collateral for the loan. 

Asset finance can be for something specific to your business such as cooking equipment for a restaurant, heavy machinery for agriculture, medical equipment, or items such as office furniture, computers, or vehicles.

There are three main types of business loans that can assist with purchasing equipment. These are leasing (including a finance lease or an operating lease), chattel mortgages, or commercial hire purchases. 

All three options allow your small and medium-sized businesses the opportunity to purchase equipment quickly and boost your productivity with no or little capital upfront. With the new equipment serving as collateral, equipment financing is an effective, inexpensive way to acquire business equipment compared to other financing options.

We discuss the different types of equipment finance options in more depth in our blog Machinery Finance Options for Your Business. 

Reasons to choose an Equipment Finance Loan for Your Business

1. Allows for consistent cashflow

As a business owner, you can acquire assets without investing a large sum of working capital upfront. Instead, the loan amount is spread out over the loan term with manageable payment options. As you know how much you will be paying each month, this allows for easy budget predictions and allows you to keep your business cash flow in check.

2. Allows you to get equipment quickly and for the term you need it!

Financing allows you to get the equipment you need immediately, without a huge capital outlay. Asset leasing or equipment rental can give you access to an important piece of equipment that is only needed for a fixed period of time. 

A chattel mortgage or commercial hire purchase allows you to finance equipment, essential to your business operations, and take ownership of the equipment upfront (chattel mortgages) or at the end of the loan term (hire purchase)

3. Comes with tax benefits for your business

Equipment financing may come with potential deductions for your business. Leasing and equipment loans come with their own taxation benefits. 

When leasing equipment, the monthly leasing payments that you make over the leasing term be tax deductible. Other equipment loans may allow you to claim the interest paid over the financial year. 

It is important to speak with your accountant to determine the taxation benefits which will best suit your own business's individual needs.

4. Enhances your businesses productivity

Having the latest technological advances in your industry can ensure that your business maintains efficiency and stays ahead of the pack. The new equipment also means less downtime due to breakdowns and reduced costs when it comes to maintenance. All of these things are great for productivity and your business's bottom line.

Equipment finance can help make this possible with little upfront capital and manageable monthly repayments. 

5. Saves funds for unanticipated events

When your business obtains equipment financing, you will have more control over your budget and can set aside working capital and liquidity to cover unforeseen events. This reserve can improve your ability to deal with unexpected expenses such as breakdowns or downturns in the industry. 

You may also have the financial means to spend additional funds on marketing and other avenues to assist your business growth.

6. Guards against inflation

Equipment financing can safeguard your long-term investments against inflation. By securing finance through a long-term lease or other equipment loans, your business can be safeguarded against a possible increase in prices. 

You should, however, ensure that any long-term asset financing is cost-effective and comes with competitive interest rates. Before securing financing, talk to the team at Finance Brokers NSW.

7.  Flexibility with repayment and term 

When you take out equipment financing, you have options. You can choose a repayment amount and term that suits your business's cash flow. 

As a business owner, you can opt for a lower monthly repayment. However, this may mean at the end of the equipment finance term, you will be required to pay a balloon payment or residual amount. 

If you don't have the funds to pay the balloon payment at the end of the loan term, you can refinance the residual balance into a new equipment finance loan. You should, however, consider the additional interest that you will pay over the lifetime of the equipment financing deal.

8. Outsource Asset Management

When you choose asset leasing, then the equipment financing company will manage your equipment from shipment to disposal. 

You won't have to worry about routine maintenance, upkeep, and depreciation as the equipment financing company will only arrange for routine inspection and servicing. 

However, you should be aware that as you don't take ownership of the equipment, you may be limited when it comes to use and modifications.

Talk to the team at Finance Brokers NSW

At Finance Brokers NSW, our team are experts in equipment finance. We can talk you through the different equipment financing options available so you can make an informed decision on the one that is right for you.

Make sure you get the best advice and experience for your business. Give us a call to discuss your needs today.