29 November 2017

Choosing the right equipment finance option for your business

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Like most businesses, you may not have enough available cash to purchase a machine outright. There is a range of flexible finance options for you to consider. These finance options will give you more working capital to grow your business.

Going down the equipment finance road gives you more freedom to explore new growth opportunities and allows you to align repayments to suit your cash flow.

Here are a list of options generally available through most banks;

Equipment Finance Loan or Chattel Mortgage

If it’s important to your business to own the machine from the outset, an equipment loan is your best option. Depending on your circumstances, usually getting a loan for the full cost of the asset isn’t an issue because the asset itself serves as security for the loan. Generally speaking, the interest you pay plus the depreciation of the asset is tax deductible to the extent the asset is used in your business eg. The percentage of time you use the machine for business purposes.

Depending on the bank or finance broker you go with, you can usually tailor your loan to suit your business’ cash flow with different repayment options. If you are trading in a machine, you can choose to reduce the loan amount from the trade-in value.

Hire to Buy Equipment Loan

Hire to Buy or Hire Purchase as it is sometimes known is another available option at most banks and through brokers. Choosing a hire purchase agreement means the goods remain in the financier’s ownership and will only be transferred into the purchases name (yourself) until either the option to purchase is exercised by the purchaser, or the final installment for the equipment is paid.

Equipment Finance Lease

Leasing the asset allows you to get the latest equipment with no capital outlay. Your bank owns the asset and leases it to you for an agreed period. The finance lease can be structured to include a residual value which in turn gives you the option to purchase the equipment at the end of the finance term. The inclusion of a residual also gives the added benefit of lower monthly payments which places less constraint on your cashflow.

The rentals are structured with a residual value. The residual varies depending on the type of asset and length of the lease with the residual determined by the ATO guidelines. Residual value is beneficial because monthly payments are usually lower, placing less stress on your cash flow. If you have plans to eventually own the asset, the residual has to be paid out in full or can be refinanced.

This is general information, please consult your bank or finance broker for more information on your equipment finance options.