Equipment Finance is used to purchase new or used equipment for your business. For example, vehicles, farm and agricultural equipment, medical equipment, catering equipment, computers, and heavy machinery. Equipment finance can take the form of leases, hire purchase and rental agreements.
Getting a business equipment loan or lease can be a short, streamlined way to finance up to 100% of the value of any equipment you need for your business.
Because you are using the equipment as security for your loan, the amount you can borrow depends on the value of the equipment you are buying. The equipment type, age of equipment and the useful life are also important factors in determining the amount of your finance approval. You can finance up to 100% of the value of the equipment.
Equipment finance comes in many forms including leases, hire purchase, loans and chattel mortgages.
A bit confused? Don’t worry – here are some examples and explanations.
A standard equipment loan allows you to borrow up to 100% of the cost of equipment with fixed repayments. The equipment is generally the only security required for the loan.
A finance lease is a form of a rental agreement because the lessor owns the asset. At the end of the lease you have the option of purchasing the asset (for a residual amount agreed upfront), trading in the asset for new equipment or simply terminating the lease.
There is a risk that at the end of the lease the asset will be worth less than the residual value. One of the advantages of a finance lease is that the lender pays the GST component; this makes your payments lower.
This type of lease is ideal for equipment such as technology equipment that needs regular replacement. It is similar to a finance lease but the risk of the market value being lower than the residual value is with the lender, not with you.
At the end of the lease period, you simply return the goods to the financier. In this type of lease, the equipment is not listed as an asset on your balance sheet and therefore you cannot claim depreciation. You can, however, claim the lease payments as a tax deduction.
A “chattel” is a moveable asset (i.e. it’s anything other than real estate). With a chattel mortgage you own the equipment from the beginning of the term of the lease. With a chattel mortgage, only the interest component of the lease payments are tax deductible – but you can also claim a deduction for the depreciation of the asset. In addition, you can claim a credit for the GST component on your BAS statement.
Another benefit of using equipment finance is to raise capital for your business. If you own equipment outright, you can use the equipment as security for a new loan. You would first sell the equipment to a finance company and have use of this cash, then your business enters into a new lease on the equipment so that you still have use of it.
Use one of our loan calculators to find out your repayments on a loan.
Most individuals and businesses will qualify for equipment finance, including startups and people with bad credit. You can use the online prequalification tool to find out what types of loans you are eligible for.
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