Suitable Machinery Finance Options for Your Business

Businesses have plenty of options when it comes to financing machinery.  Depending on the size and needs of the business, various hire purchase, leasing or loan arrangements may be suitable. Businesses should consider an option with manageable repayments that won’t put too much strain on their cash flow.  

Hire Purchase

For small businesses, hire purchase may be a good option to spread the cost of equipment over time. Your business will make an initial deposit followed by monthly repayments.  Payments will continue until you pay the full principal and interest.  The business will then own the equipment outright.

It’s important to remember that ownership of the machinery doesn't pass to the business until you pay the contract payment. This may limit the use and opportunity for modification, depending on the type of equipment involved.

Leasing

Leasing equipment can be a good way for businesses to acquire new equipment. This involves paying an agreed amount each month for a contracted period. However, your business needs to remember it doesn’t own the equipment.  

You may have the opportunity to purchase the machinery for a pre-agreed price.  Alternatively, return the equipment and/or take out a new lease.

This can be a flexible option for businesses that:

• don’t meet the requirements of a secured loan or
• need to upgrade their machinery on a regular basis. 

Secured Loan (or chattel mortgage)

Small and larger businesses may opt for a secured loan to finance the purchase of machinery. The lenders use the equipment as security for the loan. This finance is known as a chattel mortgage.  This type of finance is common and is sourced from a variety of banks and other financial lenders. 

You will own the equipment from the outset, unlike a hire purchase or leasing agreement. Which means they have full control over the machinery. 

If you default on any of these finance options, the lender will have the right to repossess the equipment. This could seriously disrupt your business and its operations.  So make sure that repayments can be comfortably managed before signing any agreements.

Overdraft Facility

Your business may find an overdraft can be a useful way to finance the purchase of machinery.  It may be helpful to make a one-off purchase or to finance a series of smaller purchases over time.

An overdraft is an arrangement with a bank or other financial institution.  It gives you the flexibility to withdraw more money than it has in the account up to an agreed limit. With an overdraft, you will only pay interest on the amount you have withdrawn.

New or Used?

Financing is not just limited to the purchase of new machinery. Many businesses opt to finance the purchase of used machinery.  This can be a more affordable option and there are pros and cons to both options. 

Buying new machinery means that businesses can take advantage of the latest technology.  Boosting their efficiency and productivity. However, for a small business just starting out, it can be more expensive.

Used machinery may be more affordable, but always check that it is in good working order and fit for purpose. You should also consider that used machinery will have a shorter lifespan.  This means it may need to be replaced more frequently.

Flexibility of Lease or Loan Terms

To suit your business, machinery finance options are flexible and can be tailored to suit your cash flow. This includes the term of the loan or lease which is generally one to five years.  However, this can be negotiated for up to seven years.

Repayments can also be tailored. For example, a chattel mortgage allows your business to:

• pay a lower monthly repayment with an agreed residual or balloon payment at the end of the term or 
• choose to pay a higher monthly repayment to reduce or eliminate the need for a balloon payment.

Making the Right Choice for Machinery Finance

There is no one-size-fits-all solution when it comes to machinery finance. The best option depends on factors including:

•  the cost of the machinery being purchased
• the budget and
• the financial needs and goals of the business

So, before deciding on a particular financing option, it's important to get expert advice.

Talk to Finance Brokers NSW

Our team of experts will always act in your best interests.  We have over 36 years of industry experience and will take the time to get to know your business. To discuss your needs, give us a call and let us help you find the right financial solution.