October 20, 2022 1:58 PM

how equipment finance can help your business grow

Positive cash flow and effective capital allocation are critical for businesses to survive and thrive. One of the best ways to drive growth without sacrificing working capital is through business equipment loans. Australian businesses finance equipment to access the latest technology while keeping cash flow strong. According to the Australian Bureau of Statistics (ABS), equipment finance and leasing accounts for over 40 per cent of total capital expenditure for Australian businesses. 

It’s not just having frequently updated equipment and machinery that makes business equipment financing a popular option amongst Australian businesses. The ability to better manage cash flow, particularly in challenging economic environments, is another key benefit that will be increasingly important as interest rates and inflation continue to rise. This article outlines how business equipment finance can help businesses grow. Keep reading to learn more.

what is equipment finance?

Equipment finance is where a company gets equipment and machinery using one of a range of financing options. By financing equipment and machinery, a business can access what they need only when it’s needed. This can be particularly useful for companies that have seasonal peaks and troughs or those working on a project basis, such as civil engineering and construction companies working on major projects. 

Whether a company is looking to replace or upgrade existing assets, the ability to finance equipment instead of having a large capital expenditure outlay (which is required for traditional bank loans), is a powerful way to grow your business. And by paying the finance arrangement in equal monthly instalments, the company pays for the asset as it is used, meaning the revenue generated through the equipment can be used to fund repayments. 

how does equipment finance work? 

Business equipment loans generally require the business to pay off an asset in monthly installments. The term of the arrangement will typically last anywhere from six months to five years, depending on the equipment, the financier, your repayment structure and specific business needs. Your monthly repayment amounts will also differ based on the equipment finance product you choose. Some of the most common equipment finance options available include:

  • Hire purchase: Regular payments throughout the finance term. At the end of the term, the business owns the equipment. The hire purchase is considered a liability, and it’s accounted for on the company’s balance sheet. 
  • Operating lease: A lease where the lender remains the sole owner of the equipment and pays for maintenance costs throughout the rental agreement. This arrangement can be useful for project-based or seasonal equipment needs, whether these needs span a few months or a few years.
  • Finance lease: The business makes regular payments throughout the loan period, and the lessee has the option to purchase the equipment at the end of the term by paying the residual amount or “balloon” payment. 

The accounting treatment of a business equipment loan will depend on the type of financial product the company has chosen. As mentioned above, a hire purchase is considered a liability, while options such as an operating lease can be accounted for as an operating expense. Other expenses associated with the lease, such as depreciation and interest expenses, are tax-deductible. Further, businesses can take advantage of accelerated depreciation (where applicable) to get the most value possible from the asset compared to a traditional bank loan, where deprecation must follow a pre-determined schedule. 

is equipment finance the right business loan for you?

Business equipment loans in Australia can be a suitable option for companies that need to replace or upgrade machinery but don’t want to sacrifice working capital with large upfront costs. Unlike a traditional bank loan, where a downpayment is required, business equipment finance is sourced through people who know and understand machinery and are able to structure financing arrangements that work in the best interests of both parties. This means equal repayments can be made throughout the lease term to keep cash flow smooth. And with the ability to make these repayments at regular intervals, the revenue generated from the new machinery or equipment can cover the repayments.

The most effective way to determine if financing equipment is suitable for your business is by completing cash flow forecasting to ensure adequate funds are available each month to invest in new equipment. Before entering into an equipment finance agreement, you should also determine your specific needs and ensure the financial product meets these needs. 

grow your business with moneytech’s equipment finance solutions

Moneytech’s equipment finance solutions help companies to finance the purchase or hire of new equipment and raise funds against existing plant and equipment. By preserving working capital and financing the best equipment, companies can scale their operations without sacrificing working capital. Whether you’re looking to cover seasonal business fluctuations or scale production, equipment finance can help you access new machinery with payment and lease terms that meet your unique needs. Borrow up to $2 million with lease terms from six months to five years, with the option of a residual payment at the end of the term. 

As Australia’s only purpose-built and fully integrated business growth platform, Moneytech partners with businesses to support them with recovery and growth. Whether your business is seeking working capital to cover your day-to-day expenses or you’re looking to upgrade your equipment and machinery, we can help. Contact us today, and one of our experts will be in touch to discuss your options.

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*This information does not take into account your personal objectives, circumstances or needs. Consider its appropriateness to these factors before acting on it. Read the disclosure documents for your selected product or service before deciding whether to purchase them. ABN: 24611393554