Equipment Finance in Australia
What is Commercial Equipment Financing Loan in Australia?
Commercial Equipment Financing Loan is a form of funding equipment you need for your business. Most often, you can securitize the financed amount against the equipment itself, keeping interest rates lower. Equipment loan terms start from 1 year and the minimum borrow amount is $5,000. Chattel Mortgage (or Secured Loan Agreement) This is basically a fixed-term loan secured on the asset you are buying. Similar to how a home loan works, but over a shorter period. The equipment is yours from the outset, although as it forms collateral for the loan you won’t be free to dispose of it until the loan is fully repaid. If you do need to sell, you’ll have to get approval from the lender, pay out the balance of the loan, and probably pay an early termination fee. Most lenders will allow you to structure your chattel mortgage repayments to suit your business – you could agree to monthly or quarterly payments, for example, or match your repayments to seasonal cash flow. You may opt to repay the entire loan and interest over a series of equal installments – or pay lower installments and clear the balance with a ‘balloon’ payment at the end of your finance term. At that point, you’ll be free to sell the asset to cover the residual cost. Commercial Hire Purchase Commercial hire purchase is a ‘tripartite’ agreement, between you, whoever is selling the equipment, and the finance company. The financer will purchase the equipment from the seller, and you will then buy it from them in installments over an agreed period of time. With a hire purchase agreement, you can expect to pay an initial deposit and a series of repayment installments, with or without a balloon payment at the end. When you make the final payment, the ownership of the asset will pass to you, and you will be free to use or dispose of it as you wish. Until that point, although the financer remains the legal owner, you’ll have full use of the equipment, as well as all the risks and benefits of ownership. With hire purchase finance you will often be able to negotiate the term of the contract and arrange a repayment schedule that coincides with your cash flow. Finance Lease (also known as a capital lease) Finance leases are generally used for high-value purchases with a medium or long lifespan. They are a common alternative to a chattel mortgage and will put you, as the lessee, in a similar position as if you had used a loan to buy the asset. Legally, a finance lease ‘transfers substantially all of the risks and rewards of ownership of the asset to the lessee’.Under a finance lease, your lender will purchase the equipment directly from the seller, and then rent it to you for the duration of the agreement. In return, you will pay regular lease payments, with or without a balloon payment at the end. You will not own the asset during the agreement, but you will be responsible for maintenance and running costs, and for the cost of repairing any damage. A finance lease usually runs for most, or all, of the asset’s expected lifespan. Over the term of the lease, the financer will generally recoup the full purchase price of the asset, plus interest. Operating Lease (or Rental Agreement ) An operating lease is a short- to medium-term financing option (commonly 12 to 60 months) that offers you maximum flexibility. It is ideal if you want to be able to upgrade your equipment as soon as a better alternative becomes available. As with a finance lease, your lender will purchase the asset on your behalf and then rent it back to you in exchange for regular lease payments. Under an operating lease, you will not own the asset, and you won’t have the option to buy the equipment at the end of the lease. Instead, you’ll return the asset to the lender at the end of the contract, who will then sell it or lease it to another client. Under many operating leases, the lender will be responsible for the maintenance and service of the asset during the lease period. An operating lease usually only covers part of an asset’s useful life. Once the contract ends you can easily upgrade your equipment – in fact, many operating leases allow you to upgrade during the term of the lease, with a simple amendment to the contract and lease payments. Under some leases, the lender will upgrade your equipment automatically, on agreed terms Unsecured Business Loans Unsecured business loans can be used for any purpose. However, due to the higher cost of these loans, it’s best to use these for short-term funding requirements.