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Equipment finance – Find business loans & get assets
If you’re planning on taking out a business loan for purchasing assets, BestFind not only has a comparison table and repayment estimator, there’s also a helpful guide about equipment finance. It’s filled with all the expert tidbits your business needs to know when financing an equipment upgrade.
What’s equipment finance, and how does it work?
Equipment finance is a specialised form of business finance or commercial leasing that helps your business purchase, replace, or upgrade assets. Regular business loans have various purposes, such as paying for staff wages, covering everyday operational expenses or launching a startup. But equipment finance is designed specifically to finance essential business equipment.
In most cases, the asset is used as security against the loan. Here’s a question and answer explanation that simplifies how equipment finance works:
- Where can you get equipment finance? – Equipment finance providers range from the big four banks and smaller banks to non-bank lenders and specialist asset finance lenders. You can check our comparison table above for the top offers available in Australia.
- How much can you borrow? – Since business equipment comes with an assortment of price tags, you can typically borrow a wider range of loan amounts starting from around $5,000 up to $500,000 or even into the millions. Lenders will look at factors like industry, years in business, and monthly or annual turnover to determine how much you qualify for. Generally, if the overall financial health of your business is good, you can borrow more funds.
- How do you pay it back? – You repay any borrowed funds plus interest and fees in scheduled monthly repayments. To stay in control of your cash flow, it’s best to use our equipment finance calculator to estimate repayments before applying.
- What type of asset can you get? – Equipment finance is available for almost any asset purchase. The list includes vehicles, IT equipment, and heavy-duty machinery for earthmoving, mining, manufacturing, construction, and farming. It also covers specialised equipment for medical and engineering uses.
Types of equipment finance
Between buying and leasing equipment, you can find plenty of finance options to suit your business. Here are the main ways you can finance your business equipment:
- Chattel mortgage. This is the most common type of equipment finance. The loan is typically secured until you clear your debt, but you own the asset right away.
- Commercial hire purchase. The loan provider buys the asset and owns it. You then buy it from them via smaller repayments. Ownership transfers to you once the asset is fully paid up.
- Finance lease. The financier buys the equipment of your choice and rents it out to you for a set period. You won’t own the asset, but once the lease period is over, you can buy it, lease it again, or return it.
- Operating lease. This option works like a finance lease but with shorter lease periods. It’s also strictly a rental agreement since you usually don’t get to purchase the asset.
- Unsecured business loans. With unsecured loans, you offer an asset – for instance, property, business equipment, or vehicles – which can then be seized if you fail to pay off the loan. However, you can also apply for an unsecured loan where you don’t put up collateral. But this deal generally comes with higher interest rates.
How equipment finance helps your business
If your business uses specific equipment as its tools in trade, equipment finance can be beneficial since it allows you to:
- Invest without sacrificing a big chunk of cash flow. Perhaps the biggest advantage of business equipment financing is using the lender’s money to gain all the benefits of owning an asset. Meanwhile, you maintain your cash flow and working capital by paying off the purchase in instalments over an agreed period. If you find cheap finance, your investment can provide returns that outweigh any borrowing costs.
- Keep up with new technology. Equipment can be a regular business cost if you need to move with the times. Updating your assets helps you stay in the game, gives your competition a run for their money, and keeps the profits coming in.
- Enjoy tax benefits. The benefits of equipment finance can also come through during tax season. For instance, you can claim GST on your business activity statements. However, this depends on the type of loan, and it’s best to get tax advice from your accountant when figuring out which option is best for business.
- Build your business. If you’re a small business looking to climb the revenue ladder, you can use equipment finance to escalate production. Outfitting your business with new equipment in this way, instead of paying cash outright, helps you maintain a positive cash flow.
- Maintain operations when things go wrong. Random hiccups in business operations can be a downer, particularly when an essential piece of equipment goes out of action. Some Aussie lenders offer quick approval for equipment finance, so production will be back up and running in minimal time.
How to compare equipment finance business loans
When shopping around for the best equipment loans, the following features are worthy of your attention:
- Interest rates. As a business owner geared towards making a profit, hunting for the lowest interest rate is always good practice. That’s because your interest rate is the biggest influencer of how much you pay over the life of the loan. You’ll also have to decide between a fixed or variable interest rate. Fixed rate loans offer the security and stability of repayments that never change. On the other hand, variable rate loans come with flexible repayment options and potential savings.
- Fees and charges. Low fees and charges will also reduce the total cost of your loan. Typically, there are establishment fees, ongoing monthly and annual fees, early and late repayment fees, as well as settlement fees. These are usually specified in the product information, so be sure to read the fine print.
- Repayment options. Paying off the loan should be flexible in terms of frequency and the ability to close the deal early. Some lenders will offer flexible repayment due dates and allow you to make extra repayments without charge.
- Additional features. There are other many loan features that can sweeten the deal for you. Look out for taxation benefits, an easy application process, quick funding, and whether you can get ample cash and enough time to pay it off.
Mistakes to avoid when choosing equipment loans
We have looked at some of the benefits of equipment finance. But before you can find the deal that drives your business forward, make sure to avoid the following mistakes:
- Not knowing which option is best. The type of equipment finance that’s suitable for your business depends on the asset’s value, its lifespan, whether it’s new or used, and how often you plan to use it. There are also tax-deductible benefits to consider, so you may need to speak with both your accountant and an equipment finance broker.
- Choosing unaffordable options. When borrowing, take some time to consider the effect on your cash flow and how much revenue you hope to earn with the new asset. Also make sure you use BestFind’s equipment finance calculator to structure your repayments around your cash flow. Skipping this step could end badly for your finances if you take on more debt than you can handle.
- Not shopping around properly. Finding the lowest rates and best terms requires meticulous research. Not taking the time to do so might lead to a square peg, round hole situation. Bestfind’s comparison tools help to cut out some of the leg work for you. But it’s up to you to read the terms and conditions and make sure you’re thoroughly informed before accepting any quotes.
How to apply for equipment finance online
Lending criteria for equipment finance vary, but you might need to provide a couple of year’s worth of tax returns, balance sheets, and profit and loss statements. You also need to be 18 years or older and have a valid Australian passport or driver’s licence as well as ABN and GST registration. To apply:
- Click “Go to Site” for the provider you want
- Supply the required information and upload the necessary documents
- Wait for approval (not guaranteed) and transfer of funds which might take anywhere from several days, weeks or months.
Equipment finance in Australia FAQ
Is it difficult to get equipment finance?
Qualifying for equipment finance might be more complicated since the lender takes longer and requires more paperwork to assess your company’s state of finances. However, some lenders offer low doc equipment loans at higher rates to speed up the application process.
Can I get a bad credit loan?
Yes, though these are usually available from non-bank or specialist lenders.
What is the interest rate for equipment finance?
Equipment financing rates generally range between 5-10%. The rate you qualify for depends on a multitude of factors, including:
- Type of finance
- Type of asset
- How much the asset costs
- The amount you borrow
- Your loan term
- Whether you pay a deposit or opt for a balloon payment (this is a lump sum made when the loan term is over)
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