Small businesses can always benefit from an upgrade to existing equipment or from purchasing the very latest technology or machinery. However, the reality is that many business owners simply don’t have enough working capital to consider an outright purchase – making equipment finance an advantageous option.
Even if you can afford to invest significant cash into new assets, you are likely to be left with less capital to finance regular operations and explore new growth opportunities.
According to the Commercial Asset Finance Brokers Association of Australia (CAFBA), the asset finance market in Australia is worth $100 billion in receivables, at any given time, and around $40 billion in new equipment loans are written each year.
What Are the Most Common Types of Equipment Finance?
In short, vehicle and equipment financing enable you to purchase vehicles, machinery, office equipment and other requirements for your business on either a lease or rental basis. There are several options available for funding your business needs:
Is an Equipment Loan or an Equipment Lease Right for Me?
Choosing the best way to pay for equipment can depend on the expected productive life of an asset. If you will need an update after a relatively short period of time, leasing equipment might be the better option. This way you avoid having to finish paying off an asset that is now obsolete, which can put stress on cash flow. If the equipment is likely to generate value for a long period, an equipment loan may suit you better.
Should I Use a Broker?
In addition to helping you with the equipment loan application process, finance brokers also have access to a wide range of lenders and finance products, helping you secure the most competitive interest rates, and can advise you on which option that works for your business. Research by East and Partners shows broker-sourced equipment figures have increased, on average, from 58.4 per cent to 70 per cent in the last decade.
Who Is Responsible for the Equipment During the Finance Period?
Establish from the outset of the agreement who is responsible for maintenance, repair and replacement of the equipment during the finance period. If damage or fault occurs, you don’t want to get caught out with unexpected costs.
Are There Establishment Fees Involved?
Establishment fees can easily run into the hundreds, so it is important to be aware if there are any when you are deciding which finance option is right for you.
What Happens at the End of the Finance Period?
Before signing an agreement, it is important you understand what happens at the end of the finance period, as scenarios can vary depending on the finance option you choose. For example, if you are leasing the equipment, once the agreed term expires, you have the option to return the equipment, refinance the equipment or purchase it outright.