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What is Equipment Finance?
Equipment finance is how businesses can access necessary equipment, vehicles, or other hardware through leasing or renting arrangements. This business loan financing solution allows companies to circumvent hefty upfront capital investments and avoid overspending on equipment needed for a limited duration. Covering an array of products from heavy machinery to coffee makers, equipment finance serves as a vital lifeline across various industries.
How Equipment Finance Work in Australia
In Australia, equipment financing allows businesses to upgrade, replace or invest in new machinery, vehicles, and other necessary hardware. This method is convenient as it helps companies to circumvent large upfront payments. It covers many products, from heavy machinery to modern office interiors, making it a significant resource for different industries.
However, one must remember that the conditions, interest rates, and charges related to equipment finance can vary considerably. Some lenders also restrict the equipment they are willing to finance. Also, the borrower needs to meet specific criteria to access this form of financing. They must have been in operation for at least a year, possess an Australian Business Number (ABN), be registered for GST, and be capable of making an initial down payment of about 20 per cent.
Equipment finance is incredibly adaptable, offering financial aid for various items. It extends to vehicles, electronic devices, construction tools, medical equipment and more. But, similar to its benefits, the terms and conditions, interest rates, and associated charges with equipment finance can significantly differ. Some lenders also have certain limitations on the types of equipment they finance based on their policies. Thus, businesses must explore different lenders and choose the one that best suits their needs.
Eligibility Criteria and Requirements
Once your eligibility for equipment financing is confirmed, you can finance virtually any asset related to your company. Equipment finance is a viable avenue to explore whether you need vehicles, electronic devices, machinery, printing or medical equipment, construction tools, or even earthmoving gear.
Essential Requirements for Equipment Finance
To be eligible for equipment finance in Australia, you’ll typically need to meet the following criteria:
- Operate an ABN holder business or proprietorship
- Be GST-registered
- Hold permanent residency or citizenship
- Have a minimum business operating period of six months
- Provide business bank statements
The Application Process
The journey towards securing equipment financing in Australia can be straightforward. Most lenders offer many options if you have been trading for at least the past 12 months, possess an Australian Business Number (ABN), are registered for GST, and can make an initial deposit of 20 per cent.
Key Features of Business Equipment Financing in Australia
The dynamics of equipment finance present several significant attributes that can be moulded to correspond with your unique business requisites. One of the striking features of equipment finance is its flexibility in terms of borrowing amounts. Depending on the type of equipment and the business’s financial capacity, one can borrow anywhere between $5,000 to a whopping $500,000.
In addition to the loan amount, another noteworthy aspect is the versatility of the interest rates. They can be fixed, which means they remain constant throughout the loan term or variable, implying that they can fluctuate based on market conditions. This flexibility allows businesses to choose an option that aligns with their financial strategies.
The duration of these loans, known as the term, can also vary extensively. Businesses can opt for a short-term, as brief as one month or a longer-term stretching up to five years, depending on their repayment capacity and the useful life of the equipment.
Equipment finance offers both secured and unsecured options. In a secured loan, the equipment itself often serves as collateral. On the other hand, unsecured loans do not require collateral, but they typically come with higher interest rates to offset the lender’s increased risk.
Different Types of Equipment Finance
Equipment financing can be used for diverse business needs and circumstances. The choice between each type of financing depends on various factors, including the nature of the business, the type and cost of equipment required, the duration for which the equipment is needed, and the company’s financial situation. Here are some of the most common types of equipment finance:
- Hire Purchase: In this arrangement, businesses lease the equipment for a certain period and make regular payments. At the term’s end, they can buy the equipment outright. This option is perfect for businesses that want to own the equipment eventually.
- Operating Leases: Operating leases are similar to rental agreements. The business rents the equipment for a fixed period, after which it’s returned to the lender. This type of finance is ideal for acquiring equipment that rapidly becomes outdated, such as technology and computing devices.
- Financial Leases: Financial leases are similar to hire purchase agreements but with one key difference. The company must purchase the equipment at the end of the lease period. This method suits businesses that want to spread out the cost of expensive equipment over time.
- Chattel Mortgage: Under a chattel mortgage, businesses can borrow funds to purchase equipment, and the equipment itself is the security for the loan. Once the loan is repaid, the company owns the equipment.
- Equipment Rental: In this agreement, businesses rent the equipment for a certain period without any obligation to purchase it. This is ideal for temporary needs or projects.
- Leaseback: A leaseback arrangement allows a company to sell its already-owned equipment to a finance company and then lease it back. This method can free up capital while allowing the company to use the equipment.
Each of these equipment finance types comes with its unique structure and set of advantages and considerations that businesses need to evaluate before making a decision.
Advantages and Disadvantages
Advantages of Equipment Finance
One of the significant benefits of equipment finance is financial flexibility. Businesses can acquire necessary equipment without draining their capital reserves. Moreover, the tax benefits associated with equipment finance, such as deducting lease payments, can be appealing.
Disadvantages of Equipment Finance
Despite the advantages, equipment finance also has potential downsides. For instance, total lease payments can sometimes exceed the original cost of the equipment. Plus, businesses must be prepared to navigate the complexities of equipment finance agreements to avoid potential pitfalls.
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Success Stories: Case Studies
We take pride of success stories from satisfied clients spread across major Australian cities like Melbourne, Sydney, Perth, Adelaide, and Canberra, as well as various other parts of Australia, who have benefited immensely from our equipment financing services.
Case Study: Equipment Finance for an SMB in Melbourne
A small but burgeoning retail business in Melbourne needed to upgrade its point-of-sale systems to improve customer service and operational efficiency. Given the substantial upfront cost, the company turned to equipment finance. The business could implement the new systems across all its stores with a lease arrangement. As a result, customer experience improved significantly, leading to increased sales and business growth.
Case Study: Equipment Finance for a Construction Company in Perth
A Perth-based construction company was in dire need of new earthmoving machinery. Acquiring this equipment was pivotal for completing a large-scale project, but the company needed more capital. Leveraging an equipment finance solution, they could lease the necessary machinery. Not only did this help them fulfil their project commitments on time, but it also reinforced their reputation for reliability and quality in the construction industry.
Final Thoughts: Is it a good choice?
Your right equipment finance option will ultimately depend on your unique circumstances and business goals. At Basic Finance Loans (BFL), we work with many investors and lenders to help our clients secure the best possible financing solutions. We are equipped to assist with various financing needs, from equipment and bridging finance to home loans, development loans, and commercial loans.
Frequently Asked Questions (FAQs)
What is equipment finance?
Equipment finance is a financial product that provides businesses with the necessary funds to lease, rent, or purchase equipment. This can range from machinery and vehicles to computer hardware and office fit-outs. The primary benefit is obtaining and using vital equipment without substantial upfront capital, effectively easing cash flow.
What is an equipment loan?
How does equipment financing work in Australia?
Equipment financing in Australia is flexible, enabling businesses to purchase new equipment, upgrade existing tools, or replace outdated machinery. Many financial institutions and lenders provide equipment finance, with the terms, fees, and interest rates varying across different lenders. The process typically involves the following steps:
- The business identifies the equipment it needs.
- The business applies for equipment finance with a lender.
- Upon approval, the lender purchases the equipment on behalf of the business.
- The business makes regular repayments to the lender until the end of the finance term.
- Depending on the type of equipment finance chosen (loan, lease, hire purchase), the business may own the equipment outright at the end of the finance term or have the option to purchase it for a residual amount.
How much can I borrow?
How much can I borrow for equipment finance?
What is the minimum deposit/documentation required for Equipment finance?
If you own a property with a mortgage, you may not be required to provide a deposit for equipment financing. However, if you’re renting and wish to finance your equipment through an online application, a deposit of 20% is typically required. Necessary documentation generally includes:
- An Australian Business Number (ABN).
- GST registration.
- Proof of permanent residency or citizenship.
- Business bank statements.
- Evidence that your business has been operating for at least six months.
Can I get equipment finance with bad credit?
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