Vehicle and Equipment Finance

Equipment finance is simply a loan specifically for the purchase of a vehicle or other equipment, secured by that asset rather than property. Equipment finance can also be known as a lease, hire purchase or chattel mortgage.

Most businesses need to acquire capital equipment in the normal course of operating. This equipment could include computers, vehicles, trucks and trailers or any other form of specialised equipment. Without equipment funding businesses would need to use their own cash for the purchase. The need to acquire equipment for many businesses occurs during periods of growth where cash can be stretched and paying thousands up front can be challenging.

Generally, the asset being purchased is the primary security for the loan, and the loan itself is structured in a way for repayments to align to that assets “useful life”.

When a lender provides equipment funding, the loan amount will generally be limited to the purchase price (including upgrades/ad-ons), though costs such as delivery and commissioning can at times also be funded. This means that the debt will not exceed the value of the asset, and deposits may not be required.

What can you finance? Almost anything that is uniquely identifiable, such as:

• Cars, utes, trucks and trailers – and any other road registered vehicles.
• Plant and equipment, including yellow goods, cranes, tankers, and drill rigs.
• Forklifts, workbenches, and other workshop equipment.
• Point-of-sale machines and payment processing software.
• Commercial ovens, grills, and other commercial kitchen equipment.
• Office furniture and chairs, including partitions and cubicles.
• Software.
• Appliances such as refrigerators, coffee machines and more.
• Solar panels and HVAC systems

An equipment finance broker works to deliver the best possible financial outcome for the business. With access to a range of financial providers, finance brokers can spread your business debt across several financiers, to reduce risk and help make sure your lenders are working as hard for you as possible.

Using a broker is not just about the cost of finance. Brokers are experienced in ‘bank speak’ and process, and spend their time exploring options among their lender panel, filling in forms and following decisions on your behalf, meaning you can get on with business as usual.

Do you need a lease, a hire purchase, or a chattel mortgage? What about a balloon or seasonal repayments?

The type of equipment finance you will need, it’s term, and its structure, will depend on your own business needs. A broker cannot provide advice as to whether you should enter one form of finance over another (e.g. a lease vs a chattel mortgage), this is a job for your accountant. A broker CAN however work with your accountant on your behalf to determine the appropriate course of action and deliver their finance advice accordingly.

Collateral

Generally, a financier will fund up to 100% of the value of the asset being purchased, and sometimes more.
Whilst providing property security to support an equipment loan is an unusual requirement, a director’s guarantee and sometimes the guarantee of a separate company (e.g. where there is a separate trading entity) is very common. In fact, an equipment loan in a company name without a director’s guarantees is highly unusual, you should expect to provide your personal support for your company’s debt.

Time of Loan

Generally, the term of the loan will match the useful life of the equipment being financed, up to 7 years, but often shorter for older or more specialised assets.

Approval Time

The approval time for business equipment finance depends on who the business is working with and how quickly the business can provide the required financial information. Most equipment finance providers have a defined process and well attended credit process, this could result in approval within days, if not hours. More complex transactions can take a longer period of time though, so it is advisable to engage your broker as early as possible in the process.

Credit Worthiness

A sound history of meeting repayment obligations as and when they fall due, a strong financial results and management regime, a positive equity position in the balance sheet, and up to date statutory commitments (e.g. Tax) are all benchmarks of a strong credit worthiness profile and will provide you the greatest chance of approval on favourable terms.
There are lenders however who are more than happy to assist where things may not have gone to plan, where an asset being purchased is to generate future income, or where you are in a challenging stage of your business cycle. Talk to your broker about the various options available to you in whatever circumstances you find yourself.