Equipment Finance
About Equipment finance
When it comes to successfully running a business, the role of equipment cannot be overemphasised. Many businesses maintain their edge in the increasingly competitive market and provide the best services for their customers. However, getting equipment is usually capital intensive which makes it difficult for many companies to afford it. However, equipment finance provides a better option. As long as you can afford to repay the equipment finance or meet the obligations of the finance, you are good to go.
Equipment finance can come in many forms, all of which have their benefits and otherwise. Thus, if you are planning to get equipment but it looks like you cannot afford it, you should definitely consider going for equipment finance. Equipment finance is not only beneficial when it comes to getting the equipment you need even when you don’t have the money for it at that time, but it can also be beneficial to you if you get your equipment with equipment finance and instead use any money set aside for buying the equipment to better use. This is best for businesses. Equipment finance is not only restricted to owning equipment; it could also be to enjoy possession and use of the equipment without any actual ownership.
Types of equipment finance include;
Equipment Loan
This is a regular loan that is taken to get equipment. It is the ideal thing to do if you don’t have enough money at hand for the equipment but can comfortably repay a loan. A loan can be 100% when it covers the full cost of buying the equipment, and it could also be a partial loan, covering only a part of the purchase cost while you pay the rest from your pocket. With this kind of equipment finance, you have to repay the loan plus interest within a specific period, and payment is usually periodic, with monthly instalments being the most popular. A loan can be secured or unsecured. A loan is secured when it has security attached as a condition to getting the loan but unsecured when you simply have to apply and meet basic requirements from the lender for getting the loan. With a secured loan, your property is always at stake and should you default on the loan terms; the lender can take the property used as collateral for the loan and sell it to recoup their losses. In a way, this is tricky, but it also promises lower interest, which makes it even as long as you meet all the terms of the loan. You have nothing to worry about.
The components of equipment loan
Interest Rate
In every loan, including equipment loans, the interest is arguably the most important thing. It is what the finance company charges you for giving you the loan. Thus, it is the first thing to check when getting an equipment loan. The interest will generally be calculated per annum on the loan balance, and it is very important that you should consider several loans and compare the interest rate before you make a final decision. The interest rate could be fixed or variable.
Repayments
Generally, equipment loans have monthly repayments, but there are times it could be weekly or fortnightly. It all depends on your financial position. It is always better to fix a repayment that will allow you to pay as fast as possible without being uncomfortable.
Loan Duration
Loan duration varies between two to three years on a short term loan and five to seven years on a long term loan. Whichever you go for has its benefits, but a long term loan means you will be paying fewer repayments while you will end up paying more interest too.
Balloon Payment
You can also opt to use balloon payment for the loan. This is a payment agreed upon in which you will pay a lump sum to the lender when the loan ends. Because of this, your periodic repayments will be much lower, but the total cost of interest will be higher.
Fees and Charges
Loans also come with other fees and charges, which can increase how much you will end up paying. Such charges and fees include ongoing fees, break fee, late payment fee, discharge fee, upfront or establishment fee, etc.
Lease
Another form of equipment finance that you can consider giving a try is an equipment lease. It is simply renting the equipment to use for the time you need it. Leases are generally short-term equipment finance in nature, and this is when they are most effective. You don’t have any stake in leased equipment beyond the possession and use for the period. If you need equipment for short term use, this is definitely something you should consider. But if you will be using the equipment on a more permanent basis, a lease will cost you more in the long run, so it is not advisable in that condition.
Hire Purchase
You can also use hire purchase to get the equipment you want. When you get this kind of option from a finance company, what happens is that you will identify the equipment you want to buy, and the finance company will buy the equipment. Then, they will offer the same equipment to you on a lease with an obligation that you have to buy the equipment at the end of the agreement. In most cases, the hire purchase agreement will include the cost of the lease and the residual cost that you will pay for the equipment into the same deal so as to make sure that with every repayment, you are buying the equipment and once you pay your final repayment, the equipment becomes yours fully. In some cases, you will only be paying for the lease, and when the deal comes to an end, you will have to pay a balloon payment which will transfer ownership of the equipment to you. The most important thing to note is that during the duration of the hire purchase agreement, you are basically holding the equipment on a lease, and you don’t have ownership, and it is only after the deal ends and you fulfil your obligation that the equipment ownership transfers to you.
Disclaimer: This information is only available as a general guide on the government policies. It is derived from the official Australian government sources. We do not bear any responsibility for the commentary and analysis of this public domain information nor any liability for how the facts are interpreted. It is recommended that you speak with an accountant or financial advisor to get precise information and advice on your situation.