Equipment Finance

About Equipment Finance 

Businesses have the financial means to either modernise their current machinery or buy new, thanks to Equipment Finance or commercial equipment loans. Equipment Finance is an ideal scheme, regardless of whether you are a small to medium-sized business or a large-scale one. The loan amount, interest rate, repayment period, and other terms differ from business to business and between banks. Every bank or financial institution provides customised loan options to meet the financial goals of any company. 

Additional options, including hire purchase agreements and equipment leasing, operating and finance leases, are available with equipment financing. The machinery or equipment is automatically regarded as collateral for the loan when purchased through Equipment Finance. The lender has the right to seize the asset and recoup the funds if the borrower defaults; the risk factor for equipment finance is low, and the interest rate is also relatively low.

What is Equipment Finance?

Equipment financing refers to a loan or lease used to buy commercial equipment. Any tangible asset, aside from real estate, used in a business can be considered equipment. Examples include office furniture, computer equipment, manufacturing machinery, medical equipment, and company vehicles.

Eligibility Criteria for Equipment Finance

Banks have established several eligibility requirements to avail of Equipment Loans, some of which are as follows:

• Age should be of 18 years or older
• One should be an eligible worker in Australia
• To apply for financing and credit for a business, you must be an individual, sole proprietor, sole owner of your company, or another qualified applicant.
• The business must use the equipment for which you are seeking finance (mostly or entirely for business purposes)
• The company must have been in operation for more than a year.
• The company must be in good financial standing and not in the bankruptcy process.

Interest Rate on Equipment Finance

With loan terms up to five years for new and three years for used assets and no balloon payment, the 7.49% pa fixed rate is available for new or used cars, vans, utility vehicles and pick-up trucks.

What are the Benefits of Equipment Finance?

There are various benefits of Equipment Financing, some of which are listed below in brief:

• Flow of Cash

Even if your company is profitable, putting your cash conversion cycle at risk by using money to purchase new equipment might be problematic. With equipment financing, you can stretch out the cost throughout the item's useful life without paying a sizable upfront sum.

This helps you maintain your cash flow for your business's other uses, such as expansion projects and growth-oriented strategies.

• Used Vs New Equipment

Traditional lenders frequently avoid lending on old equipment or have rigorous eligibility and credit standards. Used equipment still has a lot of business value and utility, nevertheless. Buying used equipment might be the only way to expand when supply chains are disrupted.

Whether for the purchase of used equipment or the access to capital locked up in already owned assets, a financier who understands the value of used equipment can support your plans and growth with adaptable equipment finance solutions.

• Tax Benefits

Several tax advantages can be used with financing for business assets and equipment. You should consult your accountant or tax advisor for more information on these and your options.

Typically, you may be able to deduct the equipment's worth during its useful life, claim the input tax associated with the GST on the purchase price of new equipment, or benefit from the present Australian Government stimulus measures, including the instant write-off of the entire asset's value. You could also be allowed to write off the credit fees associated with any equipment finance loan as an operational expense under certain conditions.

Things to Know About Equipment Finance

For various types of businesses, numerous options enable them to acquire the tools required to run their operations. Equipment Finance contains the following. 

• Hire Purchase

You make consistent payments over a predetermined time when your company purchases equipment through a hire purchase agreement. After the loan period, the equipment becomes yours in full.

Your balance statement shows the liabilities for the hire purchase (as well as the asset you purchased with the financing). Even if you still owe money for the purchase, the equipment is still considered "owned."

If the balance isn't fully paid and interest has accumulated, a residual value payment might be necessary at the end of the lease.

• Operating Lease

An operational lease is the best option if you won't use the equipment for its useful life. Although you can rent the equipment for as long as you need, at the end of the lease, it must be returned to the lessor.

The lender continues to be the sole owner of the machinery and pays for upkeep throughout the lease term. In other words, it's a straightforward rental contract.

• Financial Lease

A financing lease also includes a loan time, but the small business would often make an "offer to purchase" to the lessor to buy the equipment at the end of the lease.

Documents Required for Equipment Finance

Equipment Financing requires some necessary documentation. Some of the essential ones include:

• A  Defined Business Plan

Your company's short- and long-term goals are displayed in this document and your business plan. You can get assistance creating a business plan from an accountant or business consultant.

• Project of the Cash Flow

This is a document that details your projected monthly income and expenses. It will demonstrate whether your anticipated income will be sufficient to cover any financial obligations. A cash-flow projection must be created by an accountant or business consultant if you submit one.

• Business Activity Statement or BAS

If your company is registered for the Goods and Services Tax, you must submit this form to the Australian Taxation Office (ATO). It aids in the reporting, payment, and withholding of GST, PAYG instalments, and withholding taxes. This is something that only some businesses will have, but if you do, it can help demonstrate your cash flow and how you manage it.

• Financial Statements

These are the records of your company's operations, such as the balance sheet, income statement, cash flow statement, changes in equity, and notes of explanation. You can create these with the aid of your accountant.

• Contracts

Customers' current or future agreements with you may be able to demonstrate your business's revenue.

Why is Equipment Finance Comparison Important?

Equipment financing was specifically developed to make it possible to get the finances needed to purchase cutting-edge, specialised company equipment. According to this argument, numerous banks and lenders give borrowers this choice. However, choosing the right equipment financing for your needs requires keeping track of your spending, financial condition, and tax obligations. A professional in equipment finance should be consulted.