The Ultimate Guide to Equipment and Asset Finance for Australian Businesses

Small businesses form the bulk of the country’s economy, according to the Australian Bureau of Statistics (ABS), as they account for 96% of all businesses, while employing 44% of the total workforce. Australian small businesses they also contribute around 34% of the GDP, highlighting their important role as the economy’s backbone. It goes without saying that small businesses are vital to keeping the economy up and running and staying vibrant as ever. Without them, everything else would falter.

While many small businesses have adapted to changes in the economy and weathered previous economic downturns, the global pandemic has severely impacted some, resulting in massive financial losses. Even those who have managed to persevere require additional financial resources to remain afloat and seize opportunities for growth.

Having the right equipment is essential for their success. However, not all businesses have substantial capital to purchase new, often expensive, equipment outright. This is where equipment financing and asset finance can help by providing businesses with the resources they need to overcome their immediate needs. It is a type of loan that allows businesses to acquire the equipment they need to operate, while also helping to improve cash flow and working capital.

In this guide, we will discuss the different types of equipment financing and what businesses should consider before choosing a financing option.

What is Equipment and Asset Financing?

In simple terms, these are types of funding that businesses can use to acquire the equipment and assets they need to operate their business without having to pay upfront. It is beneficial for small businesses and startups with limited capital. By spreading the cost of the equipment or asset over time, businesses can better manage their cash flow and maintain financial stability.

Equipment and asset financings are loans or financial agreements that allow businesses to purchase new equipment or assets. Usually, this type of financing can be used to purchase:

1. Heavy machinery for manufacturing, construction, agricultural, and other industries.

2. Cars, trucks, vans, and other construction vehicles.

3. Office equipment such as computers, laptops, desks, chairs, and other furniture.

4. Specialised high-tech medical, scientific, and other industrial equipment.

5. Business premises facelifts and renovations.

This is how it works: the lender provides the business with the funds to purchase the equipment or asset while the borrower pays back the loan over a set period of time, typically with interest. The equipment or asset being financed will serve as the collateral for the loan. In case of non-payment of the loan, the lender may repossess the collateral.

How Does It Help Businesses?

Different types of short-term loans would suit small business financing.

Whether you are keen on getting your hands on the latest equipment or just want to purchase cheaper used ones, you need financing so you can maximise business growth opportunities.

✔️ Overcome ever-changing demands and challenges so you can run, grow, and expand your business.

✔️ Increase the capacity of your business with new vehicles and equipment.

✔️ Run your business more efficiently with the latest equipment and technologies.

✔️ Ease the financial burden of purchasing new equipment.

✔️ Manage unexpected costs and expenses from machinery repairs to asset maintenance.

What About Other Financing Options?

There are several different types of equipment and asset financing options that you can consider. Choosing the right one for you would depend on your business needs and requirements.

Chattel Mortgage

This form of financing suits businesses that are looking to acquire equipment or vehicle as soon as possible and perhaps claim a tax deduction. However, you have to pay for any upfront costs, such as stamp duty. The asset will then serve as collateral that may be relinquished in case of default. You will eventually own the asset once you complete payment.

Hire Purchase

If you want immediate use of a car or equipment then this option would be the right one for you. The lender is actually purchasing it and leasing it to you with fixed payment terms over a specified period of time. Once payment (along with interest) is made, the ownership will be transferred to you. Take the time to read and understand the terms of the hire purchase agreement before you sign. Find out if there is an option to own the asset sooner.

Finance Lease

There are those who may want to use a car or equipment without owning it. Unlike commercial hire purchases, the asset belongs to the lender at the end of the lease. Sometimes, the lender can agree to sell the asset to the borrower at an agreed price. This type of financing is ideal for businesses that want to keep their assets up to date. Consider arranging a more flexible repayment schedule or claim the lease payments as a tax deduction.

Equipment Rental

This is a financing option where businesses rent equipment for a set period. As a short-term financing option, it may be suitable for businesses that need equipment for a specific project or event.

How to Choose the Right Financing?

When choosing a financing option, businesses should consider the type of equipment needed, their financial situation, and the loan amount required. Here are some factors to consider:

Type of Equipment

Different types of equipment may require different financing options. For example, a finance lease may be more suitable for equipment that needs to be upgraded regularly while a chattel mortgage may be more appropriate for long-term investments.

Loan Amount

The loan amount required will depend on the cost of the equipment. Businesses should choose a financing option that provides the necessary funds without putting too much strain on their cash flow.

Interest Rates

Interest rates can vary between financing options and lenders. Businesses should compare interest rates to ensure they are getting a competitive rate.

Loan Term

The loan term will depend on the financing option chosen. Businesses should choose a loan term that allows them to comfortably make fixed monthly repayments while ensuring they have access to the equipment for as long as required.

Key Takeaways

Before getting this equipment or asset financing, you have to understand the terms and conditions as well as the repayment structures of the funds you borrow. Consider making a cash flow forecast to determine the impact on your business in the short and long term. If your business is experiencing cash flow fluctuations every season, you probably have to structure your monthly payments to suit the anticipated cash flow.

Bear in mind that knowing when your equipment can generate income can help you determine the best way of completing payment. You may have to determine the expected productive life of the asset by finding the right balance between paying too long would end up depreciating the asset's value or paying too quickly would strain your cash flow.

Take time to talk to an accountant to figure out the options to ensure you get the right equipment finance tailored to your budget and unique business needs. With the right financing sorted out, your business can improve its cash flow, working capital, and overall financial health moving forward.

Want to get your business funded fast? Funding Link is committed to providing small to large businesses with flexible and fast funding solutions. Find out what your options are. Apply here now!