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  • Writer's pictureColin Green

Business Equipment Financing: The 4 Main Equipment Finance Options

Updated: Oct 16, 2023

As a business owner you may find yourself in the catch-22 situation of not being able to afford to buy equipment or machinery but needing those assets to enable you to take on more work and grow. Or you may need to acquire specialist equipment to get your business up and running to begin with such as those working in the medical or construction industries for example. Whatever the situation, it’s helpful to understand the business equipment financing options available to you. So let’s take a more detailed look at commercial equipment finance.


a forklift truck requiring business equipment financing

What Is Equipment Finance?

Equipment finance is a type of financing that allows businesses to acquire the equipment and machinery they need to operate without having to pay for it upfront. Instead of purchasing equipment outright, businesses can secure financing arrangements to lease or purchase the equipment over time, typically through loans or leases. Equipment finance can be a crucial financial tool for businesses in various industries, as it helps them acquire essential assets while preserving their working capital for other operational needs.


Businesses can choose between equipment leasing and equipment loans. In leasing, the business essentially rents the equipment for a specified period, while loans involve borrowing money to purchase the equipment, with regular repayments made over time. The choice between leasing and loans depends on the business's specific needs and financial circumstances.


Financing Equipment: The 4 Main Options

When it comes to financing equipment or machinery for your business there are primarily 4 main options:

  • A Chattel Mortgage

  • Equipment Lease Financing

  • Hire Purchase

  • Equipment Rental


What Is A Chattel Mortgage?

Don't let the word 'mortgage' throw you off; this method of financing an asset isn't quite the same as a real estate mortgage.


In a chattel mortgage scenario, the lender provides the complete funding for a business to acquire an asset. The lender then sets up a mortgage on the asset, using the asset itself as the collateral and the Personal Property Securities Register to formalise the agreement. Once the loan has been repaid to the lender over the agreed time, the lender no longer charges interest, and the business walks away with clear ownership of the asset.


Some advantages of this type of finance are:

  • fixed interest and monthly payments

  • flexible terms and timeframes

  • possible tax deductions

Plus:

  • a residual payment at the end of a loan may decrease the monthly payment


Equipment Lease Financing

With equipment lease financing the lender purchases the equipment item that a business needs, allowing them to utilise the equipment for a monthly payment within the lease terms. When the lease ends, the business can pay an agreed amount to purchase the equipment from the lender, refinance to lease the equipment or opt to sell the equipment in favour of a newer model or solution.


For example, a courier business leases a $30,000 delivery van for five years, making monthly payments to the lender. At the end of the lease, the courier business has the option to buy out the asset (the van), sign for another five-year lease, or start a new lease for another delivery van that is larger or more fuel-efficient. Through this process, the courier business has made regular payments and didn't have to part ways with the funds to buy the van outright.


Advantages of an asset lease include:

  • Fixed interest rates and monthly payments to make company accounts run smoothly.

  • Contract terms can be flexible.

  • There is a possibility that this method may incur tax deductions.


Hire Purchase

When a business acquires machinery or equipment through a hire purchase arrangement, they make regular payments to the asset provider over a fixed term and at the end of this period the business takes full ownership of the equipment. The provider is liable for all maintenance, repairs, and operating insurance during the lease. However, the hire purchase finance and the equipment you used the finance to purchase will appear on the business’ balance sheet and the asset is considered ‘owned’ by the business even if you still owe money for it.


This method:

  • guards against problems with cashflow

  • guarantees the business eventual ownership of the asset, provided they finish their lease

  • can be customised with a final lump sum payment at the end to reduce monthly costs during the lease


Equipment Rental

In this arrangement, the lender acquires the equipment or machinery, and the business owner can rent it from them for fixed payments over a defined term. At the end of the period, the business can return the asset, continue to rent it or buy it from the lender at its fair market value. Many of the same advantages of equipment leasing apply, with the following additional benefits:

  • All costs are known in advance

  • Equipment is not seen as a business asset

  • The debt against the asset is not considered a liability


The Benefits Of Equipment Financing

As we’ve highlighted, for many businesses equipment financing becomes the key to enabling your business to grow and for others it’s a means of acquiring the essential equipment required for them to even start out. The key benefits of commercial equipment finance include:

  • Preservation of Capital: One of the primary benefits of equipment finance is that it allows businesses to preserve their working capital. Rather than making a large upfront payment for equipment, they can spread the cost over time, making it easier to manage their cash flow.

  • Potential Tax Benefits: Equipment finance may offer tax benefits, such as depreciation deductions or the ability to write off interest expenses, depending on the specific financing arrangement. These tax advantages can help reduce the overall cost of acquiring equipment.

  • Customised Financing Terms: Equipment finance providers often offer flexible terms to meet the unique needs of businesses. This includes options for fixed or variable interest rates, different repayment schedules, and customised loan or lease terms.

  • Upgrades and Technology Advances: For businesses in industries with rapidly evolving technology, equipment finance can provide the flexibility to upgrade equipment at the end of a lease term, ensuring that they always have access to the latest and most efficient machinery.

  • Risk Mitigation: Equipment finance can help mitigate the risk associated with equipment ownership, such as equipment depreciation or obsolescence. Leasing, in particular, allows businesses to return or upgrade equipment when it's no longer needed or becomes outdated.


Why Work With An Equipment Finance Broker?

Equipment finance brokers can be a valuable partner for businesses looking to acquire machinery and equipment. These finance brokers specialise in helping businesses secure financing for the equipment they need. Here's how they can assist:

  • Expertise and Industry Knowledge: Equipment finance brokers have extensive knowledge of the finance industry. They understand the types of loans available, how to assess market value, and the financing options that are best suited for different types of businesses.

  • Financing Options: A business loan broker can help business owners assess the range of financing options available. They can assess the relative advantages and disadvantages and provide expert advice.

  • Access to Lenders: Finance brokers have relationships with many different lenders and can help you find a loan that is tailored to your specific needs and financial situation. This network allows them to connect businesses with lenders that offer favourable terms and competitive interest rates.

  • Customised Solutions: Equipment finance brokers work closely with businesses to understand their specific needs and financial situations. They can tailor financing solutions to align with the business's cash flow, budget, and long-term goals.

  • Competitive Rates and Terms: Equipment finance brokers can negotiate on behalf of the business to secure competitive interest rates and favourable terms. They have the knowledge and experience to structure deals that benefit the business financially.

  • Time Savings: Finding the right financing solution can be a time-consuming process. Finance Brokers streamline this process by doing the legwork for the business, saving valuable time and allowing the business owner to focus on their core operations.

  • Credit Assessment: Commercial equipment finance brokers can help businesses assess their creditworthiness and take steps to improve their credit profiles, increasing their chances of securing favourable financing.

  • Documentation and Compliance: Equipment finance brokers assist with the paperwork and documentation required for equipment financing. They ensure that all legal and compliance requirements are met, making the process smoother and reducing the risk of errors.


With such a complex process, it’s vital to have the right support in your corner to help you navigate the complexities of the process. An equipment finance broker leverages their expertise, industry connections, and knowledge of the available financing solutions and they can make a significant difference in a business's ability to acquire the equipment they need to grow and succeed.


If your business needs equipment or machinery to grow, talk to our expert equipment finance broker, Colin Green. To find out more, contact us or call Colin at CJG Finance on: 0402 413 917 or email him: cgreen@cjgfinance.com.au

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