An In-depth Exploration of Equipment Financing: Your Essential Guide

Do you need business financing for equipment but aren’t sure where to start? You’re in the right place. Obtaining equipment financing can seem overwhelming, but with the right knowledge, it doesn’t have to be complicated. This comprehensive guide will provide an overview of the different types of equipment financing available, tips and best practices for applying, and a few alternative methods of funding if traditional lenders don’t work out. Read on to learn more about how you can make getting equipment financing easy and stress-free! 

Even if you have the financial means to purchase high-value assets, it could ultimately cost your business in terms of potential capital for day-to-day operations and avenues for growth.

The Commercial Asset Finance Brokers Association of Australia (CAFBA) has reported that there is a staggering $100 billion in receivables within the asset finance market in Australia, and around $40 billion worth of new equipment loans are written annually.

What Are the Most Common Types of Equipment Finance?

To put it simply, vehicle and equipment financing allows companies to acquire vehicles, machinery, office tools and other necessities without paying the full price. There are various ways you can finance your business requirements:

• A vehicle and equipment loan is often the financing choice for businesses looking to acquire necessary items, making up 78 percent of the total market. With this type of arrangement, your business holds onto ownership throughout the loan duration and provides it as collateral with your lender should you encounter difficulty in keeping up with payments.
• As an alternative to equipment loan financing, consider taking out an equipment finance lease. With this option the bank or other lender would own the equipment while the business leases it for a set period at a fixed rental rate. At expiration of your agreement you may choose to return the gear, refinance it or buy it outright.
• A hire purchase loan enables you to pay for a piece of equipment in instalments, with ownership transferring over at the end of your repayment period. To be sure that this is feasible for you financially, it’s advisable to consult an accountant and create a cash flow forecast before committing. Moreover, the NAB Cash Flow Improvement Calculator with your accountant may assist you in evaluating if and where corrections should be implemented to guarantee that your business is financially secure. Understanding equipment finance can be tricky so read on for a list of five essential inquiries every small business owner must ask themselves prior to obtaining equipment finance.
• To ensure that your financial situation is properly taken into account, it’s important to consult with a tax expert or financial advisor when choosing the right loan structure for you. This way, you can make sure any taxes associated with business lending are correctly handled.
• Calculating the effect of equipment finance on your business’ finances is essential yet challenging if you have to deal with seasonal cash flow variations. Thankfully, NAB’s Equipment Finance Repayment Calculator has got you covered! You can also now find many financing providers offering flexible repayment plans according to periods of higher income.

Is an Equipment Loan or an Equipment Lease Right for Me?

When choosing the best way to finance equipment, you must consider its productive life expectancy. If a rapid update is necessary, leasing might be more sensible since it enables you to stay current without having to make payments for an asset that has become obsolete. On the other hand, should your gear forecast long-term value, then obtaining an equipment loan could prove advantageous and keep cash flow stress free!

Should I Use a Broker?

Not only do finance brokers help you navigate the equipment loan application process, they also have access to an array of lenders and financial products. This allows them to find you the best possible interest rates, as well as advise on which option is optimised for your business needs. In fact, recent research from East and Partners indicates a significant increase in broker-sourced equipment – expanding from 58.4 percent to 70 percent over the past decade!

Who Is Responsible for the Equipment During the Finance Period?

Prior to signing any agreement, it is essential to clearly define who will be accountable for upkeep, repair and substitution of the equipment during the finance period. To avoid unexpected costs in case of damage or fault happening, make sure you have sorted this out before agreeing on anything.

Are There Establishment Fees Involved?

When trying to determine which finance option is ideal for you, it’s imperative to check if there are any establishment fees associated. Such fees can quickly add up in the hundreds—so be sure to take them into account!

What Happens at the End of the Equipment Finance Period?

Before entering into any agreement, it is indispensable you are aware of the conditions once your financial term expired. Depending on which finance option you go for, the scenarios may differ – if you decide to lease equipment for instance, after completion of the agreed duration You can either return it or refinance and even have an opportunity to buy outright.

Source: Newsroom