Commercial Equipment Financing

Commercial Equipment Financing

Commercial equipment financing can be a tricky thing. You’ve got a lot of different options to choose from, no two businesses are ever the same (so, what worked for the guy next door may not work for you) and you’re probably getting a lot of unsolicited advice from well-meaning family and friends (thanks, Dad).

But if you’re seriously wondering how to get an equipment loan, the best thing to do is ask the experts. An equipment finance broker can provide you with the latest information, walk you through all the different options available and help to ensure you end up with Commercial equipment financing that’s right for you. But first things first: What is equipment finance? What equipment financing options are available? And what is the application criteria for obtaining commercial equipment financing?   

What is Equipment Finance?

There’s no shame in Googling “what is equipment finance?”. Unlike a traditional home loan, business equipment finance comes with a range of quite different loan structures and eligibility criteria. But essentially, business equipment finance is a loan that can help businesses to purchase necessary equipment. It can be used to buy: 

  • Construction equipment (earthmovers, cranes, trailers, etc.)
  • Agricultural machinery (tractors, irrigators, harvesting machinery, etc.)
  • Commercial vehicles (employee work cars, trucks, vans, etc.)
  • Warehouse plant (forklifts, scissor lifts, industrial conveyors, etc.) 
  • Office equipment (computers, Audio/Visual equipment, office furniture, etc.)

What Business Equipment Finance Options Are Available? 

Equipment financing lenders offer a range of products designed to suit the diverse needs of various industries and business models. This can make it more difficult initially to decide which business equipment finance option is right for you. But it also allows for a more customised loan structure that delivers greater flexibility.

The 5 most common types of commercial equipment financing are: 

1. Equipment Loans/Chattel Mortgage

This is similar to a standard car loan in that your business owns the equipment from day 1, but the equipment acts as security for the lender (allowing them to repossess the equipment if you default on the loan). A chattel mortgage offers potential tax benefits and fixed monthly repayments (which makes it easier for budgeting business cash flow). 

2. Asset Purchase

Also known as a commercial hire purchase, this involves the lender purchasing the equipment and then allowing your business to use it while you make routine repayments. Once the initial loan term has expired, you’ll then have the option of paying off the balance, refinancing to maintain the asset lease or commencing a new asset purchase with upgraded equipment. 

3. Finance Lease

This is similar in structure to an asset purchase. The lender buys the equipment outright and then leases it to you over a fixed term for a set amount. At the end of this fixed term, your business can return the equipment, extend the lease or purchase the equipment from the lender at market value. This can be a more cost-effective option when you’re buying equipment with a relatively short operational life. 

4. Novated Lease

A novated lease is a type of car loan that you pay on an employee’s behalf from their pre-tax income. This allows for greater flexibility when choosing an employee vehicle (as you’re not strictly limited to commercial vehicles). With a novated lease, the employee is the one who is responsible for servicing the loan. So, if your employee decides to change employment, you’re not stuck with a vehicle and a loan that you no longer need. 

5. Sale and Leaseback

This is an equipment finance option for businesses that have recently purchased new equipment (typically within the past 3 months). With this kind of finance arrangement, the lender essentially buys the equipment from you (allowing you to recoup a significant upfront cost) and then leases it back to you while you repay the cost of the equipment. At the end of the specified loan period, ownership transfers back to your business.    

What are the Criteria for Obtaining Commercial Equipment Financing?   

An equipment finance broker can help you ascertain which finance solution would be most suitable for your business. Typically, a lender will want to look at details such as: 

  • What kind of business you’re operating, and whether or not it’s in a high-risk industry. 
  • Your business financials, including your usual profit and current cash flow situation. 
  • How much debt your business already has.
  • What kind of equipment you plan to purchase.
  • How long your company has been operating, and how much experience you have in running a business. 

If you think commercial equipment financing is the solution to your current business needs, the good news is, we can help. As experienced equipment finance brokers, the team at Professional Lending Solutions can answer all your questions, make recommendations tailored to your business needs and help you get Commercial equipment financing sorted. We’ll even handle all the paperwork for you! To get started, just give me a call today on Ph: 0421 934 033 or Ph: 07 5597 6049.