If you’re a small business owner, equipment might be a high cost for you to consider. But it may still be essential to acquire a piece of equipment in order for you to start taking on more work and grow your business.
Luckily, there are different equipment finance options available in Australia that make it possible for businesses of any size to obtain the equipment they need.
Like with anything, financing equipment requires careful consideration. Depending on how you receive the funding, you might face different taxes, costs and/or other price considerations.
Being aware of these factors is also helpful if you supply equipment to a range of businesses. Partnering with a financier to offer different financing plans might enable you to reach new customers and secure more new business.
In this article, we’ll provide a quick guide to equipment finance in Australia, so you can choose the best option for your business.
Equipment finance describes the act of obtaining the use of machinery, vehicles or other equipment by renting or leasing that product.
For businesses, it ensures they don’t overspend on equipment they may only need for a season. It also requires a much smaller capital investment upfront compared to buying equipment outright.
Equipment financing is relevant to a wide range of industries. Major manufacturing operations require pieces of heavy machinery ,but even your local café may need to lease their coffee machine.
There are many options for SMEs, allowing them to secure the necessary equipment for their operations. These include the following:
Hire Purchase
When your business acquires equipment using a hire purchase arrangement , you make regular repayments over a fixed period of time and .at the end of the loan period, the equipment is officially yours.
Hire purchase liabilities (and the asset you used the finance to purchase) appear on your balance sheet. The equipment is considered ‘owned’, even whilst you still owe money for the purchase.
There may be a residual value payment required at the end of the lease if the balance isn’t entirely paid and interest has been accrued.
Operating Lease
An operating lease is best if you don’t require the equipment for the full period of its useful life. You can lease the equipment for several years as needed, however, it is returned to the lessor at the end of the lease period.
The lender remains the sole owner of the equipment and covers maintenance costs during the lease period. In other words, it’s a simple rental agreement.
Financial Lease
A finance lease also comes with a loan period however at the end of the lease the small business will typically purchase the equipment from the lessor upon an ‘offer to purchase’.
If your business requires equipment but doesn't have the revenue to pay for the lease of an asset, you may want to secure a business loan.
SME lending is available in various structures to help you obtain the money you need to start being operational.
You can get a business term loan to finance long term capital purchases. When choosing the proper loan structure, make sure to match the cash flow to the asset's lifespan.
In other words, you should avoid taking out a five-year loan for a purchase that will only be operational in your business for three years.
No matter how you finance your operations, take your time with careful cash flow forecasting. This will help you determine which equipment finance structure is the most appropriate for you.
You'll also get a feel for whether you might benefit from a business loan to make capital investments.
Equipment financing enables you to take on new projects and scale up your ope. With the proper planning and financing structure, it’s one of the best ways to grow your business.
For more tips on business financing, contact us today!
