Equipment finance is obtaining the use of machinery, vehicles or other equipment on a lease or rental basis. This avoids the need to invest capital in equipment but still allows the business to operate effectively in a short period of time.
Type of business
The kind of business you have and the type of equipment you need are major factors in determining whether to lease or buy. If you’re just starting out and only need one computer, for instance, it makes more sense to buy. But, if you’re opening an office requiring a dozen or so computers, you may want to look into equipment finance.
Equipment finance works for those businesses that are finding it hard to get finance because the equipment is used as security and if they default on payment the equipment can be taken away (as ownership rests in the hands of the financial institution or leasing company.)
When a lender offers monies that are secured against equipment the amount financed cannot exceed the collateral value. This is so that if you, as the borrower, defaults, the cash value of the equipment covers the outstanding payments. The length of the loan also doesn’t exceed the length of the economic useful life of the financed equipment, since no equipment is immune to depreciation, especially when regularly used.
Equipment finance is common in businesses that find it hard to source traditional funding, and is a great option for start-up companies. It makes it possible to have much needed equipment for a new business to function fully. It’s also worth noting there are cases where equipment finance works out cheaper than other traditional methods of finance. This method can often be cheaper than paying cash because payments can be spread over a set period, whereas buying equipment outright can be expensive and diminishes liquidity.
Want more information on equipment finance?
If you would like to learn more about equipment finance, contact us on 08 9417 5550 and ask to speak with one of our Commercial Finance Specialists.